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Appeals Manual |
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Appeals Manual |
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Part 8. Appeals
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Chapter 13. Closing
Agreements and Offers in Compromise
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Section 2. Offers
in Compromise
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8.13.2.1 (01-01-2005)
Offers in Compromise (OIC) Overview
1.
This
2.
An offer in
compromise (OIC) is a proposal to pay a lesser sum
of money to satisfy an outstanding tax liability,
including penalty and interest. There are three
legal bases for an OIC:
A.
doubt as to
liability,
B.
doubt as to
collectibility,
C.
to promote
effective tax administration.
3.
) Appeals
has jurisdiction to make decisions on offers in
compromise in the following categories:
A.
Offers
appealed after Field Collection or the Centralized
Offer in Compromise (COIC) sites rejected them.
(This includes rejections of offers originally
submitted directly to Appeals.) Following
B.
Offers
based in whole or in part on doubt as to liability
where the liability to be compromised is pending or
was determined by Appeals. As in cases of rejected
doubt as to liability offers, evaluate these offers
in the same manner as in a proposed deficiency case.
C.
Offers
submitted to Appeals as an alternative during a
Collection Due Process (CDP) or Equivalent Hearing
(EH) case.
D.
Appeals
does not have jurisdiction over pending deficiency
cases. See
E.
Appeals has
no authority to compromise a liability in cases
where the Department of Justice (DOJ) has previously
reduced a liability to judgment. Only DOJ can settle
such a case. TC 550 with definer code 04 indicates
this situation. In addition, a TC 520 cc 80
indicates that a judgment was obtained and TC 520 cc
70 indicates litigation is pending. More information
is in the Offer in Compromise Handbook,
8.13.2.1.1 (01-01-2005)
Authority
1.
Internal
Revenue Code section 7122(a) authorizes the
Secretary of the Treasury to "compromise any
civil or criminal case arising under the internal
revenue laws prior to reference to the Department of
Justice for prosecution or defense" . If the
tax to be compromised (including penalties and
interest) is $50,000 or more, IRC section 7122(b)
requires that we place the opinion of Counsel on
file in the office of the Secretary. The opinion of
Counsel verifies that there is a legal basis for
compromise. If Counsel finds a legal basis for
compromise, but disagrees with the decision to
accept the offer or the amount of the offer, Counsel
may approve the offer but indicate its concerns in a
side memo. When requested, Counsel attorneys also
provide assistance on legal matters arising in the
investigation of the offer.
2.
Regulations
written under section 7122 are binding authority for
the Service when working offers in compromise. 26
3.
)
Delegation Order No. 11 (as revised) (see
A.
To accept
offers based upon effective tax administration or
involving special circumstances criteria regardless
of the amount of the liability sought to be
compromised is delegated to Appeals Area Directors.
B.
To accept
offers in compromise regardless of the dollar
amount, excluding effective tax administration, and
special circumstance offers is delegated to Team
Managers and Team Case Leaders in Appeals.
C.
To reject
offers in compromise for public policy reasons is
delegated to Appeals Team Manager and Appeals Team
Case Leaders.
D.
To reject
offers in compromise excluding public policy offers
regardless of the amount of the liability sought to
be compromised is delegated to Appeals Team Managers
and Appeals Team Case Leaders.
E.
To
acknowledge withdrawal of all offers in compromise
is delegated to Appeals Team Managers and Appeals
Team Case Leaders.
4.
Although
not explicitly stated in Delegation Order 11 (as
revised), the approval of the Appeals Team Manager
will be required to accept any offer when Counsel
renders a negative opinion on regular offers. The
Area Director is required to approve an Effective
Tax Administration or Doubt as to Collectibility
with Special Circumstances offer when Counsel
renders a negative opinion.
5.
The
Secretary of the Treasury is not authorized to
compromise liabilities assessed for certain child
support obligations on behalf of the Secretary of
Health and Human Services. See
8.13.2.1.2 (01-01-2005)
Policy Regarding Offers in Compromise
1.
Policy
Statement P-5-100 (see
2.
IRC
6331(k)(1) prohibits levy action while an offer is
pending (except in jeopardy or delay situations).
See also Policy Statement P-5-97 and 26
A.
During any
period the offer for that liability is pending. (An
offer is pending beginning on the date the Secretary
accepts such offer for processing and remains
pending until the offer is returned, rejected,
withdrawn, or accepted);
B.
During the
30 days following rejection of the offer, and
C.
During any
period in which an appeal of the rejection of an OIC
is being considered.
8.13.2.2 (01-01-2005)
Offer in Compromise (OIC) Requirements
1.
To be
accepted , an OIC must be filed on the current
revision of Form 656. Form 656 provides specific
instructions for completion of the offer.
2.
Taxpayers
must complete the appropriate line item stating the
basis for the OIC. The basis should be doubt as to
liability, doubt as to collectibility, or the
promotion of effective tax administration. The
taxpayer may indicate multiple bases for compromise,
though the offer may be accepted on only one.
A.
If the
offer is being used to raise doubt about the
validity and legality of the liability, the taxpayer
must include a written statement that describes in
detail why they do not owe the liability.
B.
If the
offer is filed based on doubt as to collectibility,
and if the taxpayer cannot offer an amount greater
than or equal to the reasonable collection potential
(RCP), they must complete the written statement (
Explanation of Circumstances ) in Item 9
of Form 656, Offer in Compromise, explaining their
special circumstances.
3.
For offers
based upon effective tax administration, the
taxpayer must also complete the "Explanation of
Circumstance" portion of Form 656 and describe
why payment of the tax liability in full would
either create an economic hardship or would be
unfair and inequitable.
4.
Each
taxpayer that is party to an offer should personally
sign Form 656. When unusual circumstances prevent
this, an authorized representative may sign if
he/she has a valid power of attorney.
8.13.2.2.1 (01-01-2005)
Terms of the Offer
1.
There are
three (3) options to pay the offered amount:
A.
Cash Offer
(must be paid in 90 days or less)
B.
Short Term
Deferred Offer (paid in more than 90 days, but
within 2 years)
C.
Deferred
Payment Offer (paid over the remaining life of the
collection statute).
2.
Appeals
employees working offers must be familiar with the
terms of offers and the information necessary to
compute offer amounts. See
3.
For all
offers in compromise accepted after
8.13.2.2.2 (01-01-2005)
Application Fee
1.
Starting
2.
Form 656
explains:
A.
The
application fee,
B.
Who must
pay the application fee,
C.
How to
claim qualification for an exception,
D.
When the
application fee might be refunded, and
E.
What phone
number to call if there are questions.
3.
An OIC that
is received without the application fee or a signed
certification will be returned as not processable
without further consideration. It is the
responsibility of the Appeals Officer or Settlement
Officer to determine that the taxpayer’s income
and family unit size support the 656A. See
Note:
The exception for poverty is applicable
only to individual taxpayers. It does not apply to
entities such as corporations or partnerships.
Reminder: Amended offers are not considered a new receipt and will not be charged the
OIC Application Fee.
4.
Generally,
the situation in which Appeals would receive an
offer that has not gone through the Centralized
Offer in Compromise (COIC) sites apply to CDP and EH
offers.
5.
If the
appropriate collection resolution to a CDP/EH case
is an OIC, the following questions and answers
should provide guidance for application fee purposes
when securing offers in CDP/EH. Information is also
found in
Question: Two taxpayers have joint
liabilities only. They submit one Form 656. Should
they submit one application fee?
Answer: Yes. Treasury Regulations
requires taxpayers to submit one fee for each Form
656 taken in for processing. 26
Question: Two taxpayers have joint
liabilities only. They submit two Forms 656 without
Form 656-A. Since the liabilities are joint, should
they submit one $150?
Answer: No. Treasury Regulations
requires taxpayers to submit one fee for each offer,
i.e., each Form 656 accepted for processing. Since
two offers have been submitted, two fees are
required. If you can determine which taxpayer paid
the application fee (personal check drawn on the
account of one of the taxpayers), the offer from the
taxpayer who paid the fee should be sent to COIC for
processing. You should contact the taxpayer to
re-confirm the taxpayer’s intention to file two
offers and obtain the fee for the second offer or
return the second offer as nonprocessable.
Question: Two taxpayers have joint
liabilities and either or both have separate
liabilities also. They submit one Form 656 listing
both the joint and separate liabilities and only one
$150 application fee. Is this offer processable?
Answer: Yes. Treasury Regulations
require taxpayers to submit one fee for each offer,
i.e. each Form 656. Although it is the Service’s
policy to require separate offers when taxpayers
have both joint and separate liabilities, the offer
submitted is processable. The Service can require
the taxpayer to perfect the original offer by
submitting a new offer to separate the liabilities.
The new offer will require a second fee. When
Appeals communicates with the taxpayers to perfect
the offer, send the taxpayers two Forms 656, one for
each
6.
If the
taxpayer’s application fee was dishonored after
Collection rejected the offer with appeal rights,
the offer will be returned and the appeal dismissed.
See
8.13.2.2.3 (01-01-2005)
Pending Deficiency Cases in Appeals
1.
Appeals
employees should always explain to taxpayers the
legal and administrative remedies available to them.
A.
If
taxpayers indicate that they are unable to pay a
proposed deficiency, appeals officers will advise
them of the OIC program. Taxpayers are responsible
for initiating the first proposal for compromise.
Advise taxpayers that their proposal should reflect
their maximum ability to pay. Appeals officers will
document discussions about offers in compromise in
the administrative file.
B.
Offers to
compromise must be submitted on Form 656. The
taxpayer must provide Form 656-A (if applicable),
Form 433-A, (Collection Information Statement for
Individuals) and/or Form 433-B, (Collection
Information Statement for Businesses) with
supporting documentation. The taxpayer should be
advised that an OIC Specialist will investigate
their offer and may require additional financial
information during the investigation.
Note:
An offer in compromise becomes pending
once it has been accepted for processing. An offer
is accepted for processing when a Service employee
with the delegated authority signs the Form 656.
Appeals Officers or Settlement Officers do not sign
Form 656, as the processability determination has to
be made by Collection. All offer receipts must be
forwarded to the appropriate Collections Centralized
Offer in Compromise (COIC) site.
2.
By signing
Form 656, the taxpayer waives the statutory period
for assessment for periods included in the offer (
Form 656, Item 8(e)) beginning on the date the offer
is deemed "pending" . The Collection
Statute Expiration date (CSED) is suspended by
statute during the period the offer is considered
pending by
3.
Point out
the provision in Form 656, Item 8(d), which states
that acceptance will require the taxpayer to fully
comply with all filing and paying requirements of
the law for five years or until the offered amount
is paid in full—whichever is longer. If the
taxpayer does not comply, the offer will be
considered in default.
4.
Inform
taxpayers that they agree to give up certain refunds
and credits, Form 656, Item 8(g), to which they may
otherwise be entitled.
5.
Advise
taxpayers that acceptance of an OIC for a particular
tax period closes that tax period for all purposes
including assessment or abatement of tax,
collection, and suits for refund. (Form 656, Item
8(l).)
6.
Deposits
are not necessary for consideration of offers.
Advise taxpayers that:
A.
Funds
deposited with an offer may be withdrawn at any time
at the taxpayer’s request.
B.
Interest is
not paid on funds on deposit regardless of whether
the offer is accepted, rejected, or withdrawn.
C.
When
necessary, assist taxpayers by answering their
questions relative to completing the Form 656 and
financial statement(s).
D.
If an offer
is rejected or withdrawn, the deposit will be
returned unless the taxpayer authorizes in writing
that the deposit should be applied to the tax
liability. Use Form 3040, Authorization to Apply
Offer in Compromise Deposit to Liability, for this
purpose. The deposit will be credited to the
liability as of the date the offer deposit was
received by the Service.
7.
If
Collection determined the offer to be processable,
the application fee is not returned. If however, the
offer is accepted under effective tax
administration, or doubt as to collectibility with
special circumstances, the taxpayer will have the
option to have the application fee refunded or
applied to the accepted offer amount.
8.13.2.2.3.1 (01-01-2005)
Offers Filed With Appeals on Pending Deficiency
Cases
1.
) If an OIC
based on doubt as to collectibility is filed with
the appeals officer while a case is under
consideration to determine the liability other than
in Collection Due Process or Equivalent Hearings,
the Appeals Officer should take the following
actions.
2.
Examine the
Form 656.
A.
Check for
the taxpayer(s) signature.
B.
Be sure the
Form 433-A and/or Form 433-B are included along with
the application fee. If a taxpayer submits an offer
that does not include all outstanding liabilities,
it is still processable.
C.
Attach a
statement to Form 656 that "the liability is
currently not assessed and is under Appeals
consideration" . Provide your name, telephone
and fax number for contact by the Offer Specialist
when they complete the offer investigation.
3.
Send the
original Form 656, Form 656-A if applicable, a copy
of Form 433-A /B along with the application fee, to
Centralized Offer in Compromise (COIC) at the Campus
for the taxpayer’s location on Form 3210,
Transmittal Document. Field Offer in Compromise
groups may no longer load new offers to the
Automated Offer in Compromise (AOIC) system. Retain
a copy of Form 656 in the file.
Reminder: Appeals employees do not sign
Form 656.
A.
COIC is
responsible for determining processability and
processing of the application fee and for all other
initial case processing, including the mailing of
processability letters and input of necessary
transaction codes to Integrated Data Retrieval
System (IDRS).
B.
If the
offer is processable, COIC will send the processable
letter to the taxpayer and proceed to work the offer
investigation. If the offer is not processable, COIC
sends the not processable package back to the
taxpayer.
4.
Continue
the settlement negotiations to determine the tax
liability and secure the appropriate agreement
forms.
A.
If the
taxpayers do not wish to negotiate further regarding
the tax liability, they may be willing to execute an
agreement whereby they agree to the assessment of
the liability as determined by the Service
conditioned upon the Service’s acceptance of the
offer in compromise. (Send a copy of this agreement
with the initial Form 656 package to COIC.)
B.
If the
offer is ultimately rejected, the agreement will be
returned to the taxpayer.
5.
Form 870 is
the only agreement form that will be used on these
agreements. Add the following language to the Form
870 on these agreements:
This document shall be effective as a
waiver of the restrictions on assessment and
collection of the deficiency (deficiencies) on the
date the Service mails notification to the taxpayer
that the OIC submitted for (insert type of tax and
the taxable periods) and signed by the taxpayer on
(insert date) is accepted. Until such notification
is mailed, the waiver shall not be "
filed" for the purpose of computing the period
during which interest shall not be imposed under the
provisions of IRC 6601(c).
6.
If the
appeals officer is holding an agreement contingent
upon acceptance of the offer, he/she will maintain
informal contact with the Collection Specialist.
A.
If
Collection is willing to accept the OIC, the appeals
officer should take the steps necessary to have the
tax assessed (telephonically if necessary). Appeals
should notify Collection that the tax has been
assessed and Collection can then process the
acceptance. The tax must be assessed before the
offer can be accepted.
B.
If
Collection determines that rejection of the offer is
appropriate and the Independent Administrative
Reviewer (IAR) has agreed, the taxpayer may appeal
the rejection through normal offer procedures. The
appeal of Collection’s decision to reject the OIC
will not be heard by the Appeals Officer handling
the pending deficiency case.
7.
If Appeals
reaches an agreement with the taxpayer on the tax
liability and the appropriate agreement form signed,
we may close the deficiency case provided the
agreement is not contingent upon acceptance of the
offer. At local option, the deficiency case may be
held open if this will facilitate the processing of
the OIC.
8.
Cases that
are docketed before the United States Tax Court will
require close monitoring and coordination between
Counsel, Collection, and Appeals.
8.13.2.3 (01-01-2005)
Receipt and Control of Offers in Compromise
1.
Field
Collection, Field Examination and the Centralized
Offer in Compromise (COIC) sites forward appeals of
rejected offers to the Appeals Office that covers
the taxpayer’s location. See
2.
RRA ’98
established that the Collection Statute Expiration
Date (CSED) will be suspended while the offer is
pending (the time the offer is being processed and
considered), plus for 30 days following rejection
and during any appeal. An offer becomes pending once
the Service employee with delegated authority
accepts the offer for processing by signing the Form
656. This suspension of the CSED was repealed by the
Community Renewal Tax Relief Act effective
3.
Treasury
Regulation
Note:
I.R.C. 7508 and 7508A postpones certain
time-sensitive acts when a person is serving in the
armed forces in a combat zone, or there is a
Presidentially declared disaster. Rev. Proc.
2004-13, 2004-4 IRB 335, includes the 30-day period
for appealing a rejection of an offer in compromise
as an act that may be postponed.
4.
Appeals
must screen all new offers submitted to ensure the
appeal was timely. Any untimely OIC appeal cases
received should be returned to Compliance as
premature referrals within 30 days of receipt in
Appeals.
5.
Assignments
should be based on case complexity and experience
level of the employees.
A.
Offers in
Compromise (OIC) rejected from COIC due to the
obvious full pay criteria require less technical
expertise, and only basic financial analysis skills.
Pro-forma letters will primarily be used to handle
these cases. Refer to
B.
OICs
originating from the COIC sites but not rejected
based on the obvious full pay criteria will
generally require written and/or oral contact with
the taxpayer. Collection will review any additional
information provided by the taxpayer before sending
the case to Appeals to determine if it changes the
reasonable collection potential (RCP). If Collection
does not review that information, the offer can be
returned as a premature referral. Limited financial
analysis skills, familiarity with this manual text
and some prior exposure to other chapters of
C.
Offers
rejected by Collection field OIC groups will
generally require more complex financial analysis
skills, familiarity with asset valuation techniques,
and good communication and negotiation skills.
Familiarity with the
D.
OICs
involving in-business companies, whether sole
proprietorships, partnerships, corporations, or LLCs,
as well as out of business corporations, limited
partnerships, and LLCs with trust fund liabilities,
require much more complex asset valuation and
financial analysis skills. Familiarity with the
aforementioned
E.
OICs filed
on the basis of Effective Tax Administration (
8.13.2.3.1 (01-01-2005)
Liability Previously Determined by Appeals
1.
When an OIC
is based on doubt as to liability and the liability
was previously determined by Appeals or the
liability is pending in Appeals, the offer will be
assigned directly to Appeals for consideration.
Appeals will be responsible for determining the
merits of these offers, reaching a conclusion, and
for preparation of the closing documents.
2.
The appeals
officer should negotiate for settlement in the usual
manner. If an agreement is reached, the appeals
officer will request that the taxpayer withdraw the
offer and then process the adjustment by completing
Form 3870, Request for Adjustment. If the prior
disposition involved a Form 870-AD agreement,
approval by the Area Director of Appeals is required
for reopening. (See policy statement P-8-50). If an
agreement is not reached, the appeals officer will
act upon the offer in light of the settlement
negotiations and recommend the acceptance or
rejection of the offer as appropriate.
3.
The offer
should be processed in accordance with
4.
The
taxpayer must offer some consideration. This
generally should be the amount of the expected
corrected liability, penalties and interest. The
taxpayer does not have to pay an application fee for
doubt as to liability only offers.
8.13.2.3.2 (01-01-2005)
When Taxpayer Does Not Remain in Compliance
1.
If an offer
is received in Appeals after Collection’s earlier
rejection of such offer, and the taxpayer is no
longer in compliance with filing and paying current
tax returns, the Appeals Officer or Settlement
Officer should contact the taxpayer to attempt to
verify and/or cure the problem. The Appeals employee
should give the taxpayer a short time frame to
resubmit a tax return that may have been lost, or to
file a missing tax return late. The taxpayer is
required to pay the tax on the return to be in
compliance for further consideration of the offer.
The taxpayer is also required to be current in
making any required estimated payments or Federal
tax deposits. If the taxpayer is not current, then
an offer cannot be considered. See
2.
If the
offer was filed in connection with a CDP hearing
request, consideration of the offer will be a
collection alternative described and discussed in
the CDP determination letter. If the taxpayer
submitted an offer with the application fee, it will
be sent to Centralized Offer in Compromise (COIC).
COIC will determine the offer to be not processable,
if the taxpayer has not filed and paid all required
returns. 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" .
3.
In-business
taxpayers must have timely filed and paid all
required employment tax returns for the two
preceding quarters prior to filing an offer and must
be current with federal tax deposits for the quarter
in which the offer was proposed COIC will return the
offer as non-processable, if these requirements are
not met. See
Note:
A CDP offer should not be returned as
nonprocessable when the taxpayer owns a corporation
that is not in compliance. However, the fact that
the taxpayer is in control of a corporation that is
not in compliance may be a basis for rejecting the
offer. See
8.13.2.3.3 (01-01-2005)
Transfers of Offers in Compromise
1.
If the
offer is complex and requires a face-to-face
discussion, the case can be transferred to the
Appeals Office nearest to the taxpayer.
2.
Conduct a
preliminary review of the offer before transferring
the case to avoid unnecessary delays.
3.
If the
review shows that the liability is clearly
collectible in full, and the taxpayer has no special
circumstances for considering an effective tax
administration offer, reject the offer without
transfer of the case.
4.
Upon
completion of Appeals' action, return the entire
file to the originating Compliance office.
8.13.2.4 (01-01-2005)
Consideration of Doubt as to Collectibility Offers
1.
Offers will
not be accepted if it is believed that the liability
can be paid in full as a lump sum or under current
installment agreement guidelines.
2.
Collection
(under the Commissioner, Small Business/Self
Employed) is responsible for the analysis of the
taxpayer’s collection potential of an OIC received
in Collection. The starting point in this analysis
is the value of the taxpayer’s assets minus the
encumbrances having priority over the federal tax
lien. (Refer to
3.
If the
taxpayer protests the rejection of the offer by
Collection, they can request Appeals consideration
and review of Collection’s analysis.
4.
With
respect to determining future income, RRA 98 amended
the Internal Revenue Code to require that the
Service develop and publish schedules of allowances
that will allow taxpayers adequate means to provide
basic living expenses (See
8.13.2.4.1 (01-01-2005)
Centralized Offer in Compromise and Obvious Full Pay
Offers
1.
All new
offers will be received in the Centralized Offer in
Compromise (COIC) sites to determine processability
and for initial processing. Once the COIC units have
loaded the offer to the Automated Offer in
Compromise (AOIC) system and made a processability
determination, all processable offers in the
following categories will be transferred to the
appropriate Collection area to be worked in a
Collection field offer group:
A.
Corporations
B.
Partnerships
C.
Estates and
Trusts
D.
Incarcerated
taxpayers
E.
Trust Fund
Recovery Penalty (TFRP) – Doubt as to Liability (DATL)
F.
Self-employed
taxpayers
2.
After case
building, the COIC sites will transfer the following
types of individual taxpayers to appropriate
Collection areas to be worked in a field offer
group:
A.
Sole
proprietorships with or without employees
B.
Owners of
closely held corporations
C.
Partners in
a partnership that serves as a primary source of
income (i.e., not investments)
3.
A
significant number of taxpayers, while proposing to
compromise based on doubt as to collectibility,
nevertheless indicate on their application an
ability to pay the account in full. This type of
case is referred to as an "Obvious Full
Pay" . See
Note:
COIC will not contact the taxpayer to
submit any documents that may not have been attached
to the collection information statement where it is
apparent the taxpayer can full pay.
4.
When
processed as an "Obvious Full Pay" offer,
the rejection letter from COIC will be the first
response the taxpayer receives from COIC. A decision
to reject with appeal rights is adequately justified
by the taxpayer’s self-disclosed ability to pay in
full an amount greater than that being offered.
5.
Taxpayers
may appeal a rejected offer where their application
indicates an ability to pay the account in full.
Without additional information, Appeals will offer
only the following options to these taxpayers:
A.
To full
pay,
B.
To
establish an installment agreement, or
C.
Withdraw
the offer.
8.13.2.4.1.1 (01-01-2005)
Processing Appeals of an "Obvious Full
Pay" Offer
1.
Offer
rejections meeting the "Obvious Full Pay"
criteria are received from the Centralized Offer in
Compromise (COIC) sites.
2.
The
financial analysis revealed the taxpayer has the
ability to:
A.
Full pay
the liability via liquidation of assets, e.g., bank
account, stocks, equity; or
B.
Full pay
the liability via an installment agreement
(Illustrated in the following examples).
EXAMPLE: The taxpayer submitted an offer
for $3,500. The total amount due is $20,000. The
financial statement submitted with the offer shows
assets of the following: residence worth $85,000
with an encumbrance of $40,000 and a vehicle worth
$2,500. The offer does not address any special
circumstances. The reported income is $600 more than
the expenses.
EXAMPLE: The taxpayer submitted an offer
for $40,000. The total amount due is $85,000. The
financial statement submitted with the offer shows
assets of the following: investments of $245,092
with a loan of $50,000, residence fully encumbered,
vehicle worth $1,000, another vehicle fully
encumbered. The offer does not address special
circumstances. The reported income is $2,000 more
than reported expenses.
3.
If the
taxpayer submits any new information with their
request for an appeal of the offer, Collection is
required to consider that information before sending
the offer to Appeals. If Collection did not consider
the information provided by the taxpayer, the offer
can be returned to Collection as a premature
referral, without releasing Appeals jurisdiction, to
consider the information.
4.
Appeals
should take the following actions in "Obvious
Full Pay" cases:
A.
Send the
taxpayer a letter similar to the sample letter on
the collection issues web site at "Obvious Full
Pay" . This letter acknowledges receipt of the
rejected offer in Appeals. It advises taxpayers that
absent additional information or special
circumstances, his/her offer cannot be accepted if
the tax can be paid in full by liquidation of assets
or by an installment agreement.
B.
Give the
taxpayer a specified and reasonable time to respond.
C.
Set a
follow-up date allowing time for the taxpayer to
respond, plus some mail and processing time.
5.
If the
taxpayer does not respond within the follow up date,
prepare closing documents as follows:
A.
Rejection
letter
B.
Form 5402,
Appeals Case Transmittal & Case Memorandum
C.
A copy of
Form 1271 completed by Collection
D.
A brief
Appeals Case Memorandum (ACM) referencing the asset
equity table (
6.
If the
taxpayer responds to Appeals with new information
not previously considered by Collection, review the
information and determine whether it could make the
offer acceptable.
7.
If the new
information will require significant investigation
to determine whether it will make the offer
acceptable, return the OIC to COIC s a premature
referral without releasing Appeals jurisdiction.
8.
If the new
information will not make the offer acceptable,
prepare and process the closing documents as noted
above.
9.
If the new
information will make the offer acceptable, verify
and process documents necessary to make a
recommendation as to acceptability of the offer.
10.
If the
taxpayer responds but provides no new information
that would change the decision to sustain the
rejection, prepare and process the closing documents
per above.
8.13.2.4.2 (01-01-2005)
Processing Other Types of Rejected Offers
1.
When
processing offers other than an " Obvious Full
Pay" , Collection sends a pre-decision letter
to the taxpayer telling them why the offer will be
rejected. See
A.
Collection
is responsible for reviewing any information the
taxpayer may provide before rejecting the case. They
should address each item in their narrative or case
history as it could lead to a different decision.
2.
As a result
of the pre-decision letter, taxpayers will be more
knowledgeable about why their offer was rejected.
Appeals can then narrow the focus of consideration
to the specific issues for which the offer was
rejected.
3.
Appeals
will send out an initial contact letter identifying
those issues and ask if the taxpayer has any new
information to address those specific issues.
8.13.2.4.3 (01-01-2005)
Offer Analysis
1.
Appeals
should exercise independent judgment concerning the
valuations and business decisions made by Collection
that are disputed by the taxpayer on appeal.
Note:
Having found a basis to reject the
offer, Collection may not have addressed all the
issues necessary for acceptance of a doubt as to
collectibility or effective tax administration
offer. If Appeals agrees with arguments made by the
taxpayer, Appeals may need to address the issues not
addressed by Collection before accepting the offer.
2.
Information
excluded from the taxpayer’s financial statements
that might appear relevant in the financial
analysis, such as mortgage interest, and rental
income, should have an explanation. Taxpayers must
explain any discrepancy in the financial statement
and other reported items. For example, rental
property or mortgage shown on tax returns and no
real property assets indicated on the financial
statement.
3.
Any
economic hardship (for effective tax administration
offers) or special circumstances (for doubt as to
collectibility offers where the amount offered is
less than the reasonable collection potential)
should be documented on the Form 656.
4.
Appeals
will:
A.
Review the
offer, the rejection narrative and tables prepared
by Collection. The review can be documented in the
ACDS Case Activity Record, although using a separate
document usually facilitates easier preparation of
final documents.
B.
Review the
taxpayer’s protest. Determine the specific issues
the taxpayer disagrees with.
C.
Verify the
taxpayer is compliant in filing and paying all
returns, making estimated payments, and, if
applicable, federal tax deposits on any business
they are responsible for (such as their
sole-proprietorship). Also analyze the information
to determine the likelihood of future compliance.
For example, if the taxpayer had recent compliance
problems, if any related businesses are not in tax
compliance, or if sufficient amounts of withholding
taxes are not being withheld. See
D.
Review the
Assets and Equity Table and the Income and Expense
Table. Generally restrict the in-depth review to the
issues the taxpayer is protesting, unless there are
obvious issues needing consideration. In most
instances, it isn’t necessary to rework the entire
offer. If the analysis in other areas appear to be
reasonable and the taxpayer is not disagreeing with
all items, limit your consideration to the items of
protest.
E.
Send a
letter to the taxpayer that:
Requests any specific information or verification
supporting the taxpayer’s position that
Collection’s valuation or analysis is incorrect,
Schedules the conference or requests the taxpayer to
contact you by a specific date,
Sets clear expectations and a specific date for
providing the information. Generally, this date
should be within the next 30 days
Explains that failure to furnish requested
information by the specified date will result in
sustention of the rejection
Note:
Avoid sending blanket requests for
documentation that either may not actually be needed
in the analysis, or may have been previously
provided.
F.
Conduct the
conference; explain the offer process and how an
acceptable amount is computed. Explain how the
financial data presented supports an acceptance or
rejection of an amended offer. If the taxpayer
objects with other issues, or contends he/she can
provide additional documentation that will change
the bottom line, set a short but reasonable deadline
for the taxpayer to provide all of that information.
Explain that failure to provide that information
will result in sustention of Collection’s
rejection.
G.
Follow up
timely and review any information submitted as soon
as possible. Timeliness of case actions is an
important component in making the Appeals
determination without needing to ask the taxpayer to
update the financial information they have
previously submitted. Unwarranted inactivity gaps
should be avoided.
5.
Determine
whether and how much additional financial
verification will be required. See Financial
Analysis and Verification in
6.
Consider
amounts that can be collected from other parties by
suit, transferee assessment or assertion of the
Trust Fund Recovery Penalty. See
Note:
Cases received from Collection involving
trust funds must have already had the Trust Fund
Recovery Penalty proposed prior to transmittal to
Appeals. If this has not been addressed by
Collection, return the case as a premature referral
without releasing Appeals jurisdiction or issue an
Appeals Referral Investigation (
8.13.2.4.4 (01-01-2005)
Financial Analysis
1.
The offers
are rejected by Collection field Offer in Compromise
groups or Centralized Offer in Compromise (COIC)
units at the two campuses now responsible for
evaluating Offers in Compromise. Collection
personnel and COIC personnel should include
documentation in the file showing why their
determination was not to accept the offer. Review
this information to determine the unresolved issues.
Items to look for are:
A.
A worksheet
for asset values,
B.
A worksheet
for ability to pay, and
C.
An offer
investigator’s recommendation report.
2.
The
following
A.
B.
3.
Collection
issues that have been previously addressed during an
investigation by field personnel may not be
re-examined unless there is convincing evidence that
such reinvestigation is absolutely necessary.
Generally, Appeals considers only those items in the
protest. For example, if the issue in the protest is
the fair value on a piece of real estate, there is
no need to question and ask for documentation on
medical expenses. However, if Compliance has
overlooked an important issue that will impact
whether the offer is accepted or rejected, the offer
should be returned as a premature referral if the
Appeals employee cannot quickly resolve the new
issue.
8.13.2.4.4.1 (01-01-2005)
Procedures for Financial Verification
1.
Review
internal computer sources such as Integrated Data
Retrieval System (IDRS) to verify compliance, other
types of potential liabilities such as employment
taxes, and potential additional Trust Fund Recovery
Penalty liabilities. Each item you review should
become part of the case activity record. Consider
using a template form for your appeals case
memorandum. You may refer to the sample letters on
the collection issues web site at "ACM Examples
– OIC"
2.
Consider
the items the taxpayer addressed. Do not request
documentation from the taxpayer that Appeals can
verify internally. Otherwise, the taxpayer should
provide documents to substantiate his/her position.
For Example: Centralized Offer in
Compromise (COIC) determined the value of a vehicle
from a national auto guide based on the year and
make of the vehicle. The taxpayers stated the
vehicle has excessive mileage and is in need of
repair. The taxpayer provided proof of the excessive
mileage. The car guide gave a deduction for high
mileage.
3.
Except for
"Obvious Full Pay" cases (see
A.
Compliance
issues persist,
B.
There is
clearly an ability to pay the account(s) by means of
an installment agreement,
C.
The values
of the taxpayer’s assets results in an ability to
provide for full payment of the account(s),
D.
The amount
of the offer needs to be increased by a substantial
amount and it is not possible for the taxpayer to
fund such an increase, or
E.
The
taxpayer is making an offer to delay or frustrate
legitimate collection of his/her account.
4.
Investigation
actions that are less than 12 months old may be used
to evaluate the OIC. If the financial information
becomes older than 12 months, contact the taxpayer
to update the information. A new financial statement
is not necessary unless the financial situation has
significantly changed. The Appeals Officer or
Settlement Officer can update any information deemed
necessary. Reasonable exceptions may be made to this
rule, for example, when the
5.
A key
requirement for accepted offers with a liability of
over $100,000 is the need to review a full credit
report. This requirement only applies to offers
recommended for acceptance. If warranted, Appeals
can secure a credit report on any case over
$100,000. Appeals should not routinely exceed this
requirement.
6.
If the
offer was received in a Collection Due Process
hearing, research IDRS, the electronic locator
source, state motor vehicle records, and the real
property valuation source available in the office to
verify the taxpayer’s financial statement. Any
offer received from COIC or Field Offer Collection
other than those processed under "Obvious Full
Pay" criteria should have this information in
the case file.
7.
For
determining the taxpayer’s portion of shared
expenses, follow
8.
Follow
A.
Age of the
taxpayer
B.
Health of
taxpayer
C.
Bankruptcy
potential
D.
Unemployed
or under employed taxpayers
E.
Marital
status
F.
Size of
family and age of family members
G.
Education
and occupational experience
EXAMPLE: The taxpayer is a 76 year old
widower living on a farm that was sold to a neighbor
on contract for sale for $300 per month with $10,000
paid down which resulted in the tax liability 3
years ago. The land sale plus Social Security of
$553 per month is the only source of income. The
only assets were the land and a 1984 truck. The
homestead was of no real value and needs a
significant amount of work. It has no plumbing
facilities. The statute does not expire for another
7 years but due to his age and living conditions
(health and welfare) the amount collectible from the
taxpayer’s future income is computed on one year.
His neighbor will provide the offer funds.
EXAMPLE: The taxpayer is a single,
58-year-old truck driver. He had to quit his job due
to cancer. His only income is social security. The
collection statute expires in 7 years. The amount
collectible from the taxpayer’s future income is
computed on 2 years due to health issues. His family
will loan the funds for the offer.
9.
Evaluating
the reasonable collection potential from assets is a
component in determining the amount of an offer.
Generally, we use the value assigned by Collection.
It is only if the taxpayer disputes the valuation,
Collection failed to address the value, or we
believe that Collection significantly undervalued or
overvalued an asset as there were other reasons for
rejecting the offer, that we would need the
additional research or verification or a premature
referral may be necessary. See
A.
If it’s
an area of dispute, the taxpayer should provide
documentation to support his/her position.
B.
If
additional research is needed, we can look to
internal sources such as locator services, county
and state records or the taxpayer.
C.
If there
are other issues such as the value of an asset(s)
and an income issue, request appropriate information
to resolve all issues at the same time. The taxpayer
should be given a reasonable time to respond. It is
important that we clearly specify the date and what
will be the outcome if the information is not
received.
10.
If the
taxpayer indicates he will have to file bankruptcy
if the offer is not accepted, consider if the tax
liability can be discharged and follow
11.
For
dissipated assets, refer to
12.
Schedule a
conference within 30 days from receipt of the case
in Appeals. Set a date for the conference on the
appeal or ask the taxpayer to contact you to
schedule a time and date for the hearing. Advise the
taxpayer that you expect them to appear for the
hearing or that they contact you by the specified
date. Advise them you will close the appeal if they
do not respond and the case will be returned to
Collection for appropriate action. It is generally
required that only one conference offer be made.
8.13.2.4.5 (01-01-2005)
Consideration of Collateral Agreements
1.
Follow
2.
Use the
standard collateral agreements whenever possible to
aid in the monitoring of the agreements. The
standard agreements are listed below:
A.
Forms 2261,
Collateral Agreement-Future Income-Individual and
2261-A, Collateral Agreement-Future
Income-Corporation
B.
Form
2261-B, Collateral Agreement-Adjusted Basis of
Specific Assets
C.
Form
2261-C, Collateral Agreement-Waiver of Net Operating
Losses, Capital Losses, and Unused Investment
Credits, and;
D.
Co-Obligor
Agreements, Pattern Letters 229 and 230.
Caution: These forms need to be modified
to delete reference to the Collection statutes.
8.13.2.4.5.1 (01-01-2005)
Co-Obligor Agreements
1.
In some
states, compromise with one party may compromise the
liability with another party that is jointly or
severally liable. To preserve the ability to collect
from other parties to a joint assessment, such as
spouses, a co-obligor agreement should be secured
from the maker of the offer. Follow
2.
Co-obligor
agreements will not be solicited from individuals
seeking to compromise Trust Fund Recovery Penalty
assessments. The Trust Fund Recovery Penalty is not
treated as a joint obligation.
8.13.2.4.6 (01-01-2005)
Offer Submitted by a General Partner
1.
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
partner’s individual liability for the partnership
debt. Follow
8.13.2.5 (01-01-2005)
Effective Tax Administration (
ETA
) Offers
1.
Follow
2.
These types
of offers are becoming more common, although, they
are still the exception rather than the rule. They
require a more subjective evaluation since there are
no "standards" for
3.
As with any
appeal of a rejected doubt as to collectibility
offer, Appeals should follow
4.
In
Collection Due Process and Equivalent Hearing cases
where the taxpayer makes an effective tax
administration offer, Appeals should follow
5.
If doubt as
to collectibility exists, but collection of the
amount the Service determines to be the taxpayer’s
reasonable collection potential would cause the
taxpayer economic hardship, the offer may be
accepted based on collectibility. Such offers are
referred to as "special circumstances "
offers. See
6.
When an
amended OIC is received by Appeals, retain the
original (initial) offer and include it as part of
the offer file. Forward a copy of the amended offer
to the Campus OIC Unit with any deposit received
with the amended offer. The original of the amended
offer remains in the case file.
8.13.2.6 (01-01-2005)
Consideration of Combination Offers
1.
Combination
offers based upon both collectibility and liability
will be fully considered by both the Collection and
Examination functions prior to the case being
rejected and transmitted to Appeals. See
2.
The appeal
of the proposed rejection will receive a hearing
encompassing both issues.
3.
Combination
offers may arrive in Appeals after a prolonged
period in Exam.
A.
If the
financial information must be updated (exceeds 12
months during processing), make reasonable attempts
to have the taxpayer provide new bank and wage
statements if that is all that is necessary to
update the 433-A/433-B. The taxpayer must initial
and date the financial statements that have been
updated.
B.
Appeals
should avoid sending these financial statements back
to Collection to be reworked whenever possible. If
the Settlement Officer or Appeals Officer has
serious questions about the validity of the
financial information, an
8.13.2.6.1 (01-01-2005)
Referrals for Combination Offers
1.
Combination
offers (based upon both doubt as to collectibility
and doubt as to liability) may require referrals to
both functions.
2.
Because
effective tax administration offers cannot be
considered unless both liability and collectibility
have already been determined nonviable, these offers
may involve a referral to Collection to verify the
CIS, and in some instances, to Examination to verify
the assessment unless a conclusion can readily be
reached.
3.
Unless the
taxpayer raises liability as an issue, it will be
assumed that there is no doubt as to liability.
8.13.2.7 (01-01-2005)
Consideration of Doubt as to Liability Offers
1.
Appeals
considers doubt as to liability offers based in
whole or in part on doubt as to liability where the
liability to be compromised is pending or was
determined by Appeals. Appeals could also considers
doubt as to liability offers that were rejected by
Examination . See
2.
Appeals
should make an independent determination regarding
the offer. See
3.
Unlike
offers based on collectibility, bankruptcy or
non-compliance in filing other required returns
should not be used as a reason for returning or
rejecting doubt as to liability offers. Additional
information is found in
8.13.2.8 (01-01-2005)
Offers Submitted by Taxpayers in Bankruptcy
1.
Follow
2.
Doubt as to
Collectibility and effective tax administration
offers from taxpayers in bankruptcy will be
sustained rejections. The offer cannot be considered
while the taxpayer is under the jurisdiction of the
bankruptcy court.
A.
The wording
on the closing letter has to be altered for these
cases. It should state that as a matter of policy,
B.
A brief
Appeals Case Memorandum on Form 5402 explaining the
circumstances should be sufficient.
3.
If a
taxpayer files an offer in a Collection Due Process
(CDP) hearing and subsequently files bankruptcy,
return the offer to the taxpayer. The CDP has to
remain open until the bankruptcy is resolved.
8.13.2.9 (01-01-2005)
Closing Procedures for Non-CDP Offers
1.
Appeals is
responsible for preparing necessary reports when
closing accepted withdrawn or rejected offers.
8.13.2.9.1 (01-01-2005)
Rejected and Withdrawn Offers (non CDP)
1.
If Form
1271, Rejection and Withdrawal prepared by
Collection on a rejected offer is in the file, the
information is still accurate and the rejection is
sustained, it is not necessary to prepare another
Form1271.
2.
If the
taxpayer submitted deposits on the offer, the
rejected/withdrawal letter should state the
disposition of the deposit. The taxpayer should
advise if the deposit should be refunded or applied
to the liability.
3.
Complete
Form 5402, Appeals Case Transmittal & Case
Memorandum. If the taxpayer chose to enter into an
installment agreement, note on 5402 to Collection to
process the Form 433D, Installment Agreement
included in the closed file.
4.
Complete
pattern Letter 238 if the offer is rejected and
Letter 241 if the offer is withdrawn.
5.
Appeals
Processing Section (
6.
Prepare an
Appeals Case Memorandum (ACM) in accordance with the
following in the case of a rejection or withdrawal.
You can utilize Form 5402 for the narrative if there
is sufficient room.
A.
If an offer
is rejected, include all information needed to
support the decision to reject the offer in the
narrative. Also, include in the narrative any
counter proposals made by the taxpayer.
B.
If the
taxpayer withdraws the offer, the narrative will
usually be very limited. However, it should include
the taxpayer’s reason for withdrawal of the offer
if it is known.
8.13.2.9.1.1 (01-01-2005)
Withdrawal of an Offer
1.
Refer to
2.
If the
taxpayer personally delivers a withdrawal or mails
it certified, the offer is considered withdrawn the
date you receive the withdrawal. Date stamp the
actual withdrawal document as that will be the date
the collection statute starts running.
3.
If the
taxpayer mails, faxes or verbally withdraws the
offer, the date of withdrawal is the date Appeals
mails the withdrawal letter to the taxpayer.
4.
Clearly
document in the case file how the request for a
withdrawal was received and the resulting date of
withdrawal. This date stops the Collection Stature
Expiration Date (CSED) suspension period.
8.13.2.9.2 (01-01-2005)
Offer Acceptances (non-CDP)
1.
If an offer
is recommended for acceptance:
A.
Order a
MFTRA-X as close to the acceptance date as possible
without delaying acceptance,
B.
Sanitize
the MFTRA-X to black out all tax information that is
not disclosed to the public. See
C.
Prepare
Form 7249, Offer Acceptance Report.
2.
An Appeals
Case Memo (ACM) must be prepared. The ACM may
include a brief or long narrative depending on the
complexity of the offer.
A.
Include in
the narrative all information having a bearing on
the acceptability of the offer.
B.
Do not
include in the narrative report any comments of a
confidential nature. Include confidential
information, if pertinent to the case, in a
supplemental report.
3.
An
acceptance ACM should contain the following:
A.
The amount
of the original offer, the amount of the amended OIC,
a complete explanation if the amount is reduced, and
a description of the terms of payment,
B.
The type of
tax and periods (If the report covers individual and
joint liabilities, they should be clearly described
in separate paragraphs),
C.
A statement
of the taxpayer’s compliance history,
D.
The reason
for the proposed rejection by Collection,
E.
Issues
raised by the taxpayer,
F.
A
comparison of the Collection and Appeals analysis of
the taxpayer’s financial condition, including
documentation upon which the Appeals position is
based (N/A with doubt as to liability
"only" offers),
G.
The source
of the offer funds,
H.
An
affirmative statement that payment reasonably
reflects the collection potential or that the
special circumstances presented warrant compromise
(Effective Tax Administration/Special Circumstance
offers,
I.
The
background and relevant circumstances of the
taxpayers and analysis of the taxpayers age health,
education and prospects for future income.
4.
On
Collection Due Process and Equivalent hearing cases,
the ACM will document the detailed evaluation of the
offer – not the determination or decision letter.
For additional information, sample language and
format, see the ACM guide found on the Collection
Issues for Appeals web page. ACM Samples - OIC
8.13.2.9.2.1 (01-01-2005)
Acceptance Procedures (non-CDP)
1.
When an
offer is recommended for acceptance, prepare the
following for submission to the Appeals Team
Manager:
A.
Form 5402,
Appeals Case Transmittal & Case Memorandum,
Acceptance Letter 673,
B.
Form 7249,
Offer Acceptance Report along with sanitized MFTRA-X
transcripts, and
C.
Appeals
case memorandum.
2.
Use Pattern
Letter 673, to notify taxpayers of their OIC
acceptance. Enclose a copy of Form 656 and any
collateral agreements with the acceptance letter.
3.
The opinion
of Counsel is required on all offers recommended for
acceptance where the unpaid liability is $50,000
(including tax, penalty and interest) or more.
A.
Counsel
will sign and date Form 7249, if they agree the
offer should be accepted and return the file to
Appeals.
B.
If Counsel
does not agree that the offer should be accepted, a
statement of the reasons will be sent to Appeals.
Every effort should be made to resolve the
difference and obtain Counsel’s recommendation to
accept the offer. If Appeals still considers the
offer acceptable, the official authorized in
Delegation Order 11 may accept offers when Counsel
renders a negative decision.
4.
Once the
delegated officials signed Form 7249, the file will
be sent to Appeals Processing Section (
5.
A.
Date and
issue the acceptance letter to the taxpayer, signed
and dated by the delegated Appeals official along
with a copy of Form 656, Offer in Compromise and
collateral agreements if appropriate.
B.
Forward the
closed offer file on Form 3210 back to the
originator, whether that is a Collection Field OIC
Specialty Group or Centralized Offer in Compromise
site. Collection has to input the proper disposition
on AOIC.
C.
Retain a
copy of Form 5402, Acceptance letter, Form 7249,
Form 656, amended Form 656, the ACM, and the ACDS
case activity record in the Appeals office file.
6.
Collection
is responsible for updating the Automated Office in
Compromise (AOIC) system, handles filing of the
Public Inspection File documents and forward
accepted offers for monitoring to the appropriate
Campus OIC monitoring unit.
8.13.2.10 (01-01-2005)
Offers Submitted During Collection Due Process (CDP)
and Equivalent Hearings (EH)
1.
IRC 6320
and IRC 6330, added by the Restructuring and Reform
Act of 1998 (RRA98), allow taxpayers to request a
hearing before the Office of Appeals after the
filing of a Notice of Federal Tax Lien (NFTL) and/or
after issuance of a Notice of Intent to Levy and
Notice of Your Right to a Hearing (generally, Forms
1058 and LT11). As provided in these statutes,
taxpayers may (among other remedies) raise an OIC as
an alternative to collection.
2.
Unlike
other offers received in Appeals, CDP and EH offers
received in Appeals are under the continuous
(initial through conclusion) jurisdiction of
Appeals. The offer constitutes a component of the
final determination/decision that Appeals is
required to reach with regard to these hearings.
Appeals will be responsible for perfecting the
offers, reaching a conclusion regarding
acceptability (although Appeals may secure
assistance from Compliance to investigate and
verifying information in complex situations as
necessary), and for processing the closing
documents.
3.
Forward all
offers (including those received with a check or
money order for the application fee) to the
taxpayer’s Centralized Offer in Compromise (COIC)
site, Brookhaven or
Reminder: Appeals employees do not sign
Form 656, which signifies that the Service has
accepted the offer for processing.
4.
Offers
received under CDP will not be processed on
Collections Automated Office in Compromise (AOIC)
database. They will be entered on an Appeals
database that does not interface with AOIC, a
stand-alone platform that only captures entity data
on a processable offer. This platform was created to
allow Collection to reconcile the application fee
collected by Appeals.
8.13.2.10.1 (01-01-2005)
Certain CDP/EH Liability Offers Precluded
1.
IRC 6330
states that the underlying liability may not be
raised at the hearing unless the taxpayer did not
receive a statutory notice of deficiency, or did not
otherwise have an opportunity to dispute the tax
liability. Offers as to doubt as to liability
concern the underlying tax liability, and therefore
such offers generally should not be considered if
the underlying tax liability may not be raised.
2.
The statute
also precludes issues from the hearing if they were
considered at a prior administrative or judicial
proceeding in which the taxpayer meaningfully
participated.
3.
For
example: If taxpayers default their appeal rights
regarding the proposed assessment of the Trust Fund
Recovery Penalty (TFRP), or had a prior Appeals
hearing of the TFRP liability, they cannot submit an
offer to raise the liability issue again under CDP/EH.
8.13.2.10.2 (01-01-2005)
Discussing Offers with CDP/EH Taxpayers
1.
It is the
responsibility of the taxpayer to raise collection
alternatives in CDP/EH hearings. The Appeals Officer
has a responsibility to insure that taxpayers
understand their rights and the scope of the
process. There will be situations in which it is
obvious that an offer is a viable tool to resolve
the appeal, although the taxpayer does not recognize
it. See Policy Statement P-5-100.
2.
Under these
circumstances, it is appropriate to explain the
offer process and allow the taxpayer to weigh the
alternatives. This gives the taxpayer an opportunity
to propose and submit an offer, although the
decision concerning the offer submission lies solely
with the taxpayer. The Appeals Officer will make
reasonable efforts, when necessary, to assist the
taxpayer in preparing the offer. If the offer is
submitted during the CDP/EH hearing or before the
CDP determination/decision letter is mailed, the
taxpayer should be informed that Appeals renders the
determination on the offer.
A.
If a
taxpayer raises an OIC in a Collection Due Process
Equivalent Hearing (CDP/EH) case as an alternative
but preliminary screening revealed they do not
qualify due to non-filing of returns, non-paying of
deposits, not making required estimated payments or
one of the other processability requirements, advise
the taxpayer not to submit an offer without curing
the cause. A reasonable amount of time may be
allowed for taxpayers to file unfiled returns, etc.
B.
Inform the
taxpayer of the new application fee and that the fee
is not refunded once an offer is determined
processable unless the taxpayer’s OIC is accepted
based on effective tax administration or special
circumstances. In those cases, the application fee
will be applied to the offer amount or refunded at
the taxpayer’s request.
C.
If the
taxpayer wants an offer to be considered by
Compliance rather than Appeals a CDP/EH hearing has
been filed, Appeals must secure a withdrawal form
before the OIC is submitted. Inform the taxpayer
clearly (and document) that they are giving up their
rights for a judicial review of Appeals
determination and any retained jurisdiction rights
of reconsideration. They will be entitled to an
administrative Appeals review if their OIC is
rejected by Compliance. Compliance will consider the
offer only if the CDP/EH case has been closed prior
to the receipt of the offer. If an offer is filed
while the CDP case is pending, the offer is under
Appeals jurisdiction.
Note:
It is not appropriate to obtain a Form
12257 Waiver in this instance.
3.
Note:
4.
If the
taxpayer had a previous bankruptcy, which is closed
out, tell the taxpayer to include the discharge or
dismissal date on the financial statement. If no
date is included, the COIC site will treat it as an
open bankruptcy and return the offer as not
processable. This is the procedure as not all
bankruptcies were correctly input or reversed on
IDRS.
5.
Reminder: Before sending an offer package to COIC, review the financial information
and be alert for notification of a past bankruptcy
to prevent the above situation from occurring. The
taxpayer may receive a determination of non-processability
if this information is not included
6.
Example
1: You contact the taxpayer to arrange a
hearing date on a CDP levy. The
taxpayer/representative informs you they want to
submit an OIC. You check IDRS to determine if the
taxpayer is current in filing and paying all tax
returns before contacting the taxpayer. If the
taxpayer is not in compliance, explain that they are
not eligible for consideration of an offer or any
other alternative collection until they are current
in filing and paying all returns.
7.
Note:
8.
The Appeals
Officer or Settlement Officer should not solicit an
unprocessable OIC.
9.
If the
taxpayer is in tax compliance, explain offer
procedures. The offer amount has to exceed the
equity in any assets plus an amount the Service
could expect to obtain from future payments, absent
special circumstances. Discuss the taxpayer’s
assets and estimated equity in those assets to
evaluate if the proposed offer amount exceeds the
equity
10.
An Appeals
Officer or Settlement Officer should be able to
determine by conversation if the taxpayer is
eligible for an offer. You can save the taxpayer
time and money by discussing the requirements of an
offer. Make a determination based on the
taxpayer’s financial information if the taxpayer
is a viable offer candidate
11.
Example
2: The taxpayer owes $60,000. He states
he can obtain $10,000 from his mother as an offer
amount. You determine from conversation that he has
a home with $45,000 equity and three vehicles with
equities totaling $5,000. Unless the taxpayer
qualifies for an
12.
If the
individual taxpayer is not in tax compliance, we
should allow them a reasonable amount of time to
file the returns, pay the tax due, or both. A
business entity has to be current in depositing
required taxes.
A.
Taxpayers
are required to have adequate estimated tax paid
prior to consideration of an offer. This requirement
applies to corporate as well as individual
taxpayers. If it appears the taxpayer is not in
compliance with current estimated payments,
determine if the taxpayer has sufficient taxable
income to require estimated tax payments. Document
the amount of estimated payments that are currently
due, the amount currently paid and the amount past
due.
B.
The case
history should clearly document communication with
the taxpayer or authorized representative regarding
the non-compliance. Communication must include an
attempt to bring the taxpayer into current
compliance before the taxpayer files an offer. This
includes a request that the taxpayer make required
estimated tax payments. Specify a reasonable
deadline to comply with the request and explain the
consequences for failing to make the payments.
Requests for compliance with estimated payments
should be reasonable based on the taxpayer’s
situation. If the taxpayer does not comply, there is
no need to solicit an offer that is clearly not
acceptable.
Example 3: The taxpayer submits an offer to compromise the past five years of income
tax liabilities. The 2002 tax year is included in
the offer. It is July 2003 and initial research on
IDRS indicates that no estimated tax payments have
been made for the tax year 2003. The 2002 tax return
showed a tax liability of $8,000. The financial
statement in the file indicated the taxpayer is
currently self-employed and the taxpayer’s income
is consistent with the 2002 tax year. This
information is revealed in the initial analysis of
the file. Determine the amount of estimated tax
payments currently due and request payment of this
amount. Provide a clear deadline and communicate
that the offer will have to be rejected if the
payments are not made. If the taxpayer fails to
comply, reject the offer. If this is a CDP/EH case,
inform the taxpayer he/she is not eligible for an
offer or any other collection alternative, due to
non-compliance.
13.
If the
taxpayer’s offer seems to be a viable resolution
in preliminary screening, mail the taxpayer Form
656, Offer in Compromise, along with the appropriate
Collection Information Statement(s) Form 433-A
and/or Form 433-B. Advise the taxpayer of the
application fee and that the fee is not refunded
once an offer is determined processable unless the
taxpayer’s OIC is accepted based on effective tax
administration. In those cases, the application fee
will be applied to the offer amount or refunded at
the taxpayer’s request. Set a firm deadline for
returning the documents along with the application
fee.
14.
If an offer
is proposed from a business taxpayer to compromise
trust fund taxes, refer to
8.13.2.10.3 (01-01-2005)
Initial Receipt and Processability of Offers During
CDP/EH Cases
1.
For
consistency, the Centralized Offer in Compromise (COIC)
sites make the processability determination for all
offers in compromise. Part of processability is the
appropriate processing, i.e., depositing or
returning, of the application fee. The Form 656 is
not to be signed by the Appeals employee, as that is
part of the processability determination. Generally,
the COIC site will make the processability
determination within approximately 14 days.
2.
Send
preprinted processable and not processable letters
to COIC with the offer. These letters should contain
all Appeals contact information located at the top
of each letter. However, they should not include a
date or signatory with title at the bottom of the
letter as the COIC unit will complete these items
after their review.
Note:
A package Form 3210, Transmittal
Document, which includes Letter 3820 and Letter
3821, is available on ACDS AP Golf under Application
Fee.
3.
If the OIC
is processable, COIC will process the application
fee and return the offer package and fax a copy of
the signed and dated letters to Appeals.
4.
Forward all
offers along with the application fee (a check or
money order) to your taxpayer’s COIC site,
Brookhaven or
·
Form 3210,
clearly labeled Appeals CDP OIC. Include a fax
number for COIC to fax a copy of the processability
letter to and a phone number if the COIC site has
any questions.
·
Application
Fee
·
Form 656
·
Form
433-A/433-B
·
Preprinted
processable and not processable letters. These
letters as well as Form 3210 can be obtained from
ACDS. These letters should contain all Appeals
contact information located at the top of each
letter. However, they should not include a date or
signatory with title at the bottom of the letter as
the COIC unit will complete these items after their
review.
·
An envelope
to assist in returning processable offers to the
correct person
5.
Once an
offer is deemed processable by COIC, and the
original Form 656 is returned to Appeals. COIC will
input TC 480 on offers deemed processable.
A.
If the case is an Equivalent Hearing (or
otherwise involves periods not protected by Status
72) and is not in status 60 or status 53, request
input of Status 71 via Form 4844. Status 71 will
prevent illegal notices.
B.
If the case is a Collection Due Process (CDP)
Hearing, we will not request input of Status 71
(except as noted above), since Status 72 will
prevent notices and input of the 71 will reverse
Status 72.
C.
Any deposits submitted with the offer (or
received subsequently), must be sent via overnight
delivery to the Compliance Service Collection
Operation (
6.
If the
offer is not processable, COIC should fax a copy of
the letter showing the not processable determination
to the Appeals employee. COIC will return the
original Form 656, the application fee, and
attachments to the taxpayer along with the original
not processable letter. The taxpayer that disagrees
with the determination that the case is not
processable may raise this as an issue with Appeals.
Disagreements over processability may only be raised
with Appeals on CDP or EH offers where the Appeals
employees must make the determinations – not on
regular offers.
7.
If COIC is
notified that the application fee was not honored by
the taxpayer’s bank, the offer in compromise
cannot be considered.
Note:
COIC will telephone the Appeals employee
assigned to the CDP/EH case to advise of the
dishonored check and fax them a copy to include in
the case file. Following is the language to use for
return of an OIC when the application fee is not
honored by the bank: "We are returning your
Form 656, Offer in Compromise, for the following
reason: The check you sent us for your offer in
compromise application fee was not honored by your
bank. Therefore, we cannot consider your
offer." You also need to send Form 4844,
Request for Terminal Action to reverse the TC 480
posted to IDRS.
8.13.2.10.4 (01-01-2005)
Levy Action Suspended While an Offer is Pending
1.
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 OIC, or while an appeal of a
rejection is pending. An OIC becomes pending when it
is accepted for processing. For all offers other
than doubt as to liability offers, the Service makes
a processability determination when it receives an
offer. The Service will accept an offer for
processing unless the taxpayer is not in tax
compliance, the taxpayer is in bankruptcy, the
current Forms (656, 433A, 433B) was not used, or the
taxpayer did not submit the application fee with the
offer. See
2.
An offer to
compromise a liability is accepted for processing
when a Service official with delegated authority to
accept an offer for processing signs Form 656, Offer
in Compromise. The Service will record this date
with a TC 480 on IDRS. As of this date, levy is
prohibited unless the Service determines that
collection of the liability is in jeopardy.
3.
If the
Service determines that an OIC does not meet the
basic minimum requirements the Service has
established, the OIC is not processable. In such
cases, because the OIC was never accepted for
processing, it was never pending and levy was never
prohibited. The Service may return the OIC to the
taxpayer. Where a determination is made to return
offer documents because the OIC is not processable,
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 Treas.
Reg. §301.7122-1(f) (5).
8.13.2.10.5 (01-01-2005)
Offers Filed with Collection Incident to CDP Levy
Cases
1.
Occasionally,
a taxpayer will submit an offer to Collection just
prior to the issuance of a Collection Due Process (CDP)
levy notice, and then when the CDP notice is
received, request a CDP hearing. Depending on the
timing of the taxpayer’s request for CDP hearing,
different processes may be used. These procedures
apply only to those cases where a CDP levy notice
was issued. They do not apply to CDP lien notices.
2.
If the
request for a CDP hearing was filed after the offer
was filed, the Service will issue Letter 3212, or a
similar letter, to rescind the CDP notice. It is
expected that these letters will be issued by
Collection, however, if the CDP notice is rescinded
while in Appeals, Appeals will issue the rescission
letter. See
3.
If an offer
is received by Appeals while the case is under
Appeals jurisdiction in a CDP/EH hearing, Appeals
will consider the offer as an alternative collection
resolution.
4.
If an offer
is received by COIC while the case is under Appeals
jurisdiction in a CDP/EH hearing, COIC will deposit
the application fee, record it on a standalone
database for Appeals and send the offer to be
considered by Appeals as an alternative collection
resolution.
5.
If an offer
is received by COIC and COIC determines the case was
closed by Appeals with a determination/decision
letter, waiver or withdrawal before they received
the OIC, COIC will process and consider the offer.
8.13.2.10.6 (01-01-2005)
Requesting Assistance from Compliance
1.
Appeals may
request assistance from Examination or Collection if
the taxpayer provides new information that requires
verification or auditing.
2.
Collection
Due Process (CDP) or Equivalent Hearing (EH) cases
will frequently come to Appeals with little or no
development of the factual issues. The Appeals
Officer or Settlement Officer should look at case
information and address the issue of whether an OIC
is appropriate before recommending an offer in
compromise. The taxpayer may clearly be able to pay
in full or qualify for an installment agreement.
Also, the taxpayer may not be in compliance with
filing returns, making estimated payments, or
depositing employment taxes. An inappropriate OIC
would only delay resolving the case with the proper
resolution.
3.
When an
Offer in Compromise (OIC) is submitted by the
taxpayer as an alternative collection resolution,
Appeals will retain jurisdiction over these cases.
Appeals will generally work the offer investigation
internally using electronic research sources and
taxpayer documentation particularly when the offer
is not complex, or does not require any field
verification. However, if complex financial analysis
issues surface, the determination of an acceptable
offer amount may require input from Compliance. In
these situations, Appeals may send an Appeals
Referral Investigation (
8.13.2.11 (01-01-2005)
CDP Offer in Compromise Appeals Referral
Investigations (
ARI
) Procedures
1.
Collection
Due Process or Equivalent Hearings may generate
Offers in Compromise that require assistance from
Collection. Assistance should be requested through
the Appeals Referral Investigation (
2.
Appeals
Officers or Settlement Officers will follow the
procedures in
3.
Appeals
will follow-up with Compliance after 30 days from
the issuance of the
4.
It may not
always be necessary to request an
5.
Before
sending an
A.
Form 656
instructs taxpayers to provide current information
that reflects their financial situation for at least
the past 3 months, (whether the offer was submitted
directly to Appeals or received from Collection).
B.
The
financial statements must show all assets and
income, even those unavailable through direct
collection action, because they can be used to fund
the offer.
C.
If the
taxpayer does not meet the OIC processability
criteria, or does not provide all of the requested
financial documentation to support the offer, an OIC
is not appropriate and should not be considered as a
viable collection alternative.
6.
Generally
if the taxpayer is a wage earner or a self-employed
individual without employees the Appeals Officer or
Settlement Officer can easily and quickly verify the
financial statement through internal research. If
there is missing substantiation or incomplete
documents the offer cannot be considered. Therefore,
an
7.
An
A.
The
taxpayer is a wage earner,
B.
The
taxpayer is self-employed with no employees, or
C.
The
taxpayer fails to provide supporting documents to
determine the adequacy of the offer.
8.
The
following are examples of offers that Appeals
employees should be able to work internally without
an
Example: The taxpayer submitted an offer
for $50,000 and owes $300,000. You propose to accept
the offer. Local procedures exist to request a full
credit report without issuing an
Example: The taxpayer submitted an offer
but is able to full pay through the installment
agreement provisions. An offer should not be
accepted, but rather an installment agreement should
be negotiated with the taxpayer.
Example: The taxpayer submits an offer
of $5,000. He owes $15,000. His financial statement
shows he does not own any real property. He is now a
wage earner with adequate withholding. His liability
is a result of not making estimated payments when he
was self-employed as a carpenter. He owns a vehicle
he estimated to be worth $2,000 and a motorcycle
worth $2,500. He is paying child support of $350 per
month.
Example: Husband and wife taxpayers
submit an offer of $10,000. They owe $35,000. Their
financial statement shows the taxpayer is
self-employed as a house painter. His wife is
employed at an insurance company. They have two
school age dependents living at home. He drives a
Ford pick-up truck and she drives a Ford Taurus;
both are encumbered. They are buying a house and
making furniture payments to a loan company.
Example: The taxpayer submits an offer
of $1,500. He owes $80,000. His financial statement
shows he is a self-employed attorney. He receives
social security. He owes on six credit cards and
owns a 10-year-old vehicle worth $2,000. He owes
state taxes for four years as well as federal taxes.
He has an outstanding judgment. The financial
statement indicates he has rental income but it does
not indicate he owns any real estate. The
discrepancy between having rental income and no real
estate does not mean this is automatically an
Example: Joint taxpayers submitted an
offer for $12,000. They owe $27,000. Their financial
statement reflects investments valued at $258,000
and a residence worth $400,000 encumbered for
$320,000. The taxpayer shows ability to full pay.
8.13.2.11.1 (01-01-2005)
ARI
to the Revenue Officer Field Group
1.
(1) The
request for an
·
Collection
Information Statement (CIS) analysis and
verification when complex, specific questions or
concerns exist,
·
Asset
verification requiring actual field observation,
e.g. personal observation and evaluation of the
assets of an operating business,
·
Potential
alter ego or nominee,
·
Trust Fund
Recovery Program (TFRP) investigation.
2.
This type
of
Note:
The taxpayer is responsible for
providing the supporting information and financial
verification in these cases.
3.
The
following are examples and discussion of offers that
may require an asset investigation.
Example: The taxpayer’s financial
statement shows she has antiques worth $10,000. Her
offer is $15,000 and she owes $55,000. She incurred
the liability when she was working for an art
gallery but is now employed as a wage earner. She is
buying her home worth $200,000 and drives an upscale
vehicle. You completed an internal research but
there was no information available on the antiques.
The taxpayer states she does not have any papers
authenticating the pieces and does not have any
documentation of value. She provided an itemized
list with the values based on her knowledge. She
does not plan to sell the antiques to fund the
offer. The offer funds will be a loan from a friend.
The offer appears it might be acceptable but only if
the antiques are worth $10,000 as stated on the
financial statement. You request the field to make
an on-site visit to visually inspect the antiques
and/or any other assets and obtain the values.
Example: The taxpayer submitted an offer
on a Trust Fund Recovery Penalty TFRP. The liability
arose from a construction company that he formally
owned. The taxpayer submits a financial statement
indicating that he is no longer in business and is
working for wages. During the conference, he states
that he works for his wife and has sufficient
withholding. The taxpayer indicates that he has no
administrative duties with his wife’s business. He
further states that he does not have the financial
savvy to run a business. In verifying the financial
statement, the Appeals Officer or Settlement Officer
discovers that for the past three years the wife had
no income. Internal research revealed that the new
corporation began almost immediately after the other
one closed and the type of business is construction.
Based on these facts there may be potential for an
alter ego or nominee. Further investigation is
required by Collection before a resolution can be
determined.
8.13.2.11.1.1 (01-01-2005)
Originating Appeals Office
ARI
Responsibilities
1.
Prepare and
forward Forms 2209, Courtesy Investigation, and Form
10467, Appeals Division Feedback Report and
Transmittal Memorandum or any other acceptable local
form.
2.
Annotate in
red ink at the top "CDP Case in Appeals" .
3.
Provide
specific instructions so that the Officer knows
precisely what action(s)/information is needed.
4.
Attach any
documents that are relevant to the information that
is being requested.
8.13.2.11.2 (01-01-2005)
ARI
to the Field Offer in Compromise Group
1.
An
A.
Assets of
an unusual nature, e.g. art collection, etc. unless
the values of the assets can be determined by
independent third-party appraisals provided by the
taxpayers or insurance policies.
B.
To
determine a taxpayer’s Interest in partnership,
corporations, limited liability companies
C.
Self-employed
individual with complex issues.
Note:
Just because a taxpayer is self-employed
does not constitute a complex case.
2.
An
3.
The
following are examples and discussions of offers
that may require a complete offer investigation and
recommendation:
Example: The taxpayers submitted an
offer of $65,000. They owe $450,000. The liability
resulted from trading stock. Mr. TP is unemployed.
The equity in their residence is only $20,000 and
they lease both vehicles. Their financial statement
shows interest in three partnerships of $10,000 and
a minority interest in a corporation of $5,000. Mrs.
Taxpayer runs a riding academy and receives a W-2
from the academy. She owns a horse she uses for
riding lessons. The income on the financial
statement doesn’t support their lifestyle and the
value of the partnership interest needs to be
determined. Therefore, this warrants a complete
investigation by the OIC group.
Example: An offer is submitted on a
corporation. The financial statement indicates that
the corporation owns several pieces of rental
property, has numerous assets, and annual income of
$980,000. The corporation showed a loss of $50,000
on the last filed return. The compensation to
officers seems to be reasonable, but the rental
income is questionable based on the value and
location of the property; therefore a full offer
investigation is warranted.
4.
Below is a
case that would not qualify as a referral to the OIC
group.
Example: The taxpayers offered $17,500
on a liability of $80,000. Mr. TP runs a pest
control business with no employees. Mrs. TP has an
interior design company with two employees. Their
personal financial statement shows they are over
extended and owe a great deal on credit cards and
owe a first and second mortgage. The pest control
business has assets consisting of three vehicles
fully encumbered and equipment and supplies. They
rent warehouse space and Mrs. TP uses a freestanding
garage located on their personal property. During
the verification process, the Appeals Officer or
Settlement Officer reviewed Schedule C, which
revealed substantial contract labor expense. If a
discrepancy is identified, the Appeals Officer or
Settlement Officer should request supporting
documentation from the taxpayer. It may need to be
referred to the collection field group rather than
the offer group.
8.13.2.11.2.1 (01-01-2005)
Originating Appeals Office
ARI
Responsibilities
1.
Prepare and
forward Forms 2209, Courtesy Investigation and Form
10467, Appeals Division Feedback Report &
Transmittal Memorandum or any other acceptable local
form. Annotate the top of the referral form "
CDP Case in Appeals" in red ink and include the
following:
A.
Copy of
Form 656
B.
Copy of the
financial statement
C.
Documents
submitted by the taxpayer with Form 656.
Note:
It is important to remember that if the
taxpayer is removed from 53 or 60 status then the
Appeals Officer or Settlement Officer must request
input of status 71.
2.
Once an
offer investigation is complete, the Collection
Offer Specialist will return a complete offer file
with the income and expense table, the asset equity
table and a narrative recommendation for either an
acceptance or a rejection. The Appeals Officer or
Settlement Officer must make the
determination/decision to accept or reject offers
submitted through CDP/EH. Appeals will consider the
recommendation and proceed with the CDP/EH hearing.
3.
Offers in
Compromise for Corporations with Trust Fund
Liabilities
A.
When a
business taxpayer wants to proceed with an OIC, the
Settlement Officer or Appeals Officer will send an
B.
The Appeals
Officer or Settlement Officer will ask Appeals
Processing Section (
C.
After the
conclusion of any/all TFRP hearings, the Appeals
employee will delay assessment of the penalty
pending final consideration of the offer from the
business
D.
If an
acceptable offer amount (inclusive of all amounts
collectible from the business and all responsible
persons) can be negotiated, Appeals will solicit
Forms 2750, Waiver Extending Statutory Period for
Assessment of Trust Fund Recovery Penalty and Form
2751, Proposed Assessment of Trust Fund Recovery
Penalty from all responsible persons as a condition
of accepting the offer. Refer to
E.
If any
responsible person refuses to provide Forms 2750 or
2751, the offer cannot be accepted. The penalty
files will receive final processing in Appeals and
will be forwarded to Collection for assessment. See
8.13.2.11.3 (01-01-2005)
ARI
to Examination
1.
With regard
to liability issues, an
2.
Examination
will initiate action on these referrals within 30
days.
3.
Appeals
employees working offers involving liability issues
can refer to
8.13.2.11.4 (01-01-2005)
Notice of Third Party Contact
1.
There is no
need to verify the issuance of the Notice of Third
Party Contact when the current version of Form 656
is used. Item 8(q) of Form 656 operates as a waiver
of the third party notice requirement.
2.
Taxpayers
who submit offers on an earlier version of Form 656
must execute an amended offer on the current Form
656.
8.13.2.11.5 (01-01-2005)
Letter to the Taxpayer Regarding Referrals
1.
When
sending an Appeals Referral Investigation to
Collection, the taxpayer should be notified in a
brief letter that states in part,
"You have requested consideration
of certain issues that require the expertise of the
investigative functions of the Service. While the
Office of Appeals will maintain jurisdiction of your
case, we have requested further assistance to
research and verify the information you have
provided. It may be necessary for a Revenue
Officer/Agent to contact you for information
necessary to expedite this review. The Revenue
Officer/Agent may need to contact third parties to
verify some of this information. The information we
have requested is needed to help us reach a
resolution of your appeal."
2.
If
Collection will be verifying a financial statement
on an
3.
Settlement
Officers or Appeals Officers will attach a copy of
the referral letter to the
8.13.2.12 (01-01-2005)
Special Processing for CDP and EH Rejections and
Withdrawals
1.
For offers
submitted under Collection Due Process/Equivalent
hearings, Appeals will advise the taxpayer of the
rejection/withdrawal in the Determination/Decision
Letter. Since the taxpayer has no further right to
administratively appeal the rejection of the offer,
and because the hearing may later result in many
other alternatives (i.e. IA, Discharge,
Note:
For offers submitted under Collection
Due Process/Equivalent hearings, Appeals will advise
the taxpayer of the rejection/withdrawal in the
Determination/Decision Letter. Since the taxpayer
has no further right to administratively appeal the
rejection of the offer, and because the hearing may
later result in many other alternatives (i.e. IA,
Discharge,
2.
In the case
of a rejection, prepare Form 1271, Offer Rejection
or Withdrawal. If the taxpayer withdrew the offer,
Form 1271 is no longer required.
A.
If a period
of tax has multiple assessment dates, use the
earliest date of assessment for the "date
assessed" .
B.
The
"Outstanding Liability" should reflect the
current balance due (including tax, penalty, and
interest) at the time Form 1271 is prepared.
C.
The
Settlement Officer or Appeals Officer and the
delegated official will sign Form 1271.
3.
The
independent administrative review required for
rejected OICs on CDP cases is done by the review of
the Appeals Team Manager and signing of the Form
5402, Appeals Transmittal and Case Memo, (or local
variant).
4.
If the
taxpayer submitted deposits on the offer, notify the
Campus OIC unit of the rejection/withdrawal of the
offer. Send a copy of the taxpayer’s written
request for application of the funds and Form 656 on
a Form 3210 to the Campus OIC unit. Annotate on the
Form 3210 whether the deposit(s) is to be refunded
to the taxpayer or applied to the liability.
5.
Keep all
information with the CDP file, as the OIC was just
one of the most likely or several payment or
collection alternatives. Prepare a request, such as
Form 4844 or Form 3177 to the originating CDP
function (either
Note:
If a withdrawal is hand-delivered or
mailed by certified mail, the TC 482 date will be
the date the withdrawal was received.
8.13.2.13 (01-01-2005)
Special Acceptance Processing for CDP and EH Offers
1.
Prepare the
following documents when recommending an offer for
acceptance:
·
Form 5402,
Appeals Case Transmittal & Case Memorandum,
·
Acceptance
Letter 673,
·
Form 7249,
Offer Acceptance Report,
·
Sanitized
MFTRAX transcripts,
·
Appeals
Case Memorandum (with the Income and Expense Table (IET)
Asset Equity Table (
2.
Request
input of TC 521 and STAUP 71 on Form 5402 and submit
for Managements approval. The TC 521 releases the
CDP code and the STAUP 71 puts the account in OIC
status. If the TC 521 is released and the STAUP 71
is not input, the taxpayer will receive a notice to
pay.
Note:
Please refer to
3.
Appeals
Processing Section (
A.
If the CDP originated in
Note:
The Settlement Officer or Appeals
Officer should have previously requested input of TC
480 on all OIC covered periods, and STAUP 71 on all
non-CDP periods. That should have been done when the
OIC was determined to be processable to prevent levy
action and to stop the Collection Statute Expiration
Date (CSED) from running on all non-CDP periods.
4.
Note:
5.
6.
If the
taxpayer must begin payments on the OIC prior to the
end of the 60-day suspense period, secure the
payments locally and forward them (by overnight
delivery) to the Campus Back End OIC Unit attached
to Form 2515, Record of Offer in Compromise and a
copy of the offer. After Appeals closes the case,
the Settlement Officer or Appeals Officer will
direct the taxpayer to send subsequent payments to
the appropriate Campus OIC Unit address as indicated
on SERP Who/Where.
7.
The Campus
back-end unit will process the accepted offer and
monitor future compliance in connection with the
offer. The closed acceptance file should contain:
·
Original
Form 656,
·
Form 7249,
Offer Acceptance Report,
·
Acceptance
letter 673,
·
OIC Appeals
Case Memorandum,
·
Form 5402,
·
Other
relevant items such as collateral agreements,
financial statements and co-obligor agreements.
8.
The closed
CDP file should contain: copies of Form 656, amended
Form 656, Form 7249, OIC acceptance letter 673, and
OIC Appeals Case Memorandum along with all related
CDP information.
9.
If the
taxpayer has signed a 12257 waiving judicial appeal
rights or if this is an Equivalent Hearing case, the
OIC accepted file can be closed as stated above and
the Collection Due Process file can be closed
immediately.
10.
If the
taxpayer has not signed a 12257 waiving judicial
appeal rights, the accepted OIC file and the CDP
file must be held pending expiration of the default
period or until a final determination has been
rendered by the Court. Explain to the taxpayer that
the OIC file cannot be processed immediately because
of the CDP right of judicial review.
11.
Three
separate files must be processed, one for the OIC
acceptance, another for the CDP case, and another
for the OIC Public Inspection File. The files should
all stay together to assist
.
A.
The Appeals
office file should contain a copy of Form 5402,
complete Form 656, Acceptance letter 673, Form 7249,
with MFTRA-X, Appeals Case Memorandum and the ACDS
case activity record.
12.
Closed
8.13.2.14 (01-01-2005)
Actions on Defaulted Offers
1.
If an offer
was originally accepted by Appeals, Monitoring Offer
in Compromise (MOIC) will refer the case to the
appropriate Appeals office for review and, if
necessary, the issuance of the termination letter.
See 5.19.7.3.22 and
A.
The case
will be opened as an offer on ACDS in order to place
time on a specific case.
B.
The Appeals
Officer or Settlement Officer will determine if the
offer should be defaulted.
C.
If the
offer should be defaulted, see the sample letter on
the Appeals Collection Issues web site. The same
level of approval that accepted the offer will sign
the letter notifying taxpayers of the termination of
their OIC. The delegated official will sign these
letters.
2.
For a
taxpayer with an accepted compromise that dies
before the terms are completed, an Other
Investigation (OI) is sent to Appeals to determine
if there is an estate proceeding in which the
Service needs to make a claim. If so, the Service
should make a claim for the unpaid offer amount. If
there is no estate, the offer should be closed out
as satisfied and the compromised is not reinstated.
Request assistance from Collection on an
A.
If the
offer in default is the result of a CDP hearing, the
taxpayer would be entitled to a retained
jurisdiction hearing before Appeals. These defaults
will be worked the same as with offers accepted by
Appeals upon review of rejected offers. Do not
establish a retained jurisdiction case on ACDS. It
should be noted on ACDS as a defaulted offer and not
a new offer.
3.
IRC 7122
authorizes the Commissioner to accept an OIC of an
accepted OIC. There is no standard form for such a
proposal. It should be submitted in letter format
and addressed to the Commissioner of the Internal
Revenue. Send this type of proposal to the service
center monitoring the accepted OIC. Refer to
4.
An offer to
compromise a current/defaulted offer will be treated
as a request by the taxpayer to modify an existing
contract. This request will not avail the taxpayer
to the appeal rights afforded for offers.
8.13.2.15 (01-01-2005)
Mediation and Arbitration
1.
RRA 98
added IRC 7123, which provides that both the
taxpayer and the Office of Appeals may request
non-binding mediation or binding arbitration on any
factual issue unresolved at the conclusion of
unsuccessful attempts to enter into a compromise
under IRC 7122. For information about the mediation
process, refer to Revenue Procedure 2003-25,
2003-41, I.R.B. 1047.
2.
The goal of
Fast Track Mediation (FTM) is to help taxpayers
resolve disputes arising in examination and
collection source work without having to send the
case to Appeals
3.
Currently,
the program is not available for any offers worked
in the Centralized Offer in Compromise sites. While
Fast Track Mediation will be considered in all other
cases, the decision to mediate a particular case
remains discretionary for both the Service and the
taxpayer.
4.
Mediation
will be considered only after an offer specialist
has fully developed the case facts and made a
reasonable attempt to negotiate an acceptable offer.
If the case meets the criteria for mediation
described below, the offer specialist will inform
the taxpayer of the option to mediate, provide a
copy of Pub 3605 and answer any questions. Taxpayers
who express an interest in mediating must first
request a conference with the group manager.
5.
When the
taxpayer’s request for mediation is granted, the
offer specialist will complete Form 886, Agreement
to Mediate and prepare a Summary of Issues. Even
though mediation may result in the specialist’s
recommendation to accept, the actual decision to
accept is still subject to counsel review and
approval of the official with delegated authority
according to the category of the offer.
6.
The case
will remain in the jurisdiction of Compliance. The
case will not be reassigned to Appeals on the
Automated Offer in Compromise (AOIC) program.
Because it may not always be feasible to have a
face-to-face conference, it may be necessary to hold
the mediation process via conference call.
7.
It is not
appropriate to mediate in the following situations:
A.
When the
taxpayer has the ability to pay in full, based on
the financial data submitted by the taxpayer with
the offer,
B.
When the
taxpayer declines to increase the amount offered and
does not indicate disagreement with the values,
figures, or methodology used to arrive at the
increased amount,
C.
When the
issue is explicitly covered by procedural guidance;
i.e., unsecured debt, college expenses, or
non-qualifying charitable contributions,
D.
Rejection
is based on public policy.
8.
Examples of
matters that generally are appropriate for mediation
are the following:
A.
The value
of an ongoing business’ good will,
B.
Artwork
with collector or sentimental value,
C.
Value of
any assets, including real estate,
D.
Projections
of future income based on calculations other than
current income,
E.
Whether
assets are held as nominee or transferee of a
taxpayer,
F.
Taxpayer’s
proportion of interest in jointly held assets,
G.
Calculation
of ability to pay from future income when expenses
are shared with a not liable person.
9.
For
additional information on this topic, see
Publication 3605, Fast Track Mediation, A Process
for Prompt Resolution of Tax Issu