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OIC Received in Exam
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Financial Analysis Handbook
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RS Policy Statement P-5-100
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Offer in Compromise Regulations
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IRS Criticized
7122 statute
Bulletin 2003-36
Final Regulations
T.D. 9086
T.D. 8829
Statute of Limitations
Levy Prohibited
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Revenue Procedure 60-22
Revenue Procedure 57-16
Revenue Procedure 2003-71
Revenue Procedure 80-6
Revenue Ruling 72-436
OIC cases 6224(c)(2)
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Delegation of Authority
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Case Processing and
Controls
 
5.8.25 Case
Processing and Controls
5.8.25.1 (01-01-2000)
Overview
- This section provides
guidance for various processing issues and case
controls.
5.8.25.2 (02-01-2004)
Payments Made with Form 656
- If a payment is received
with Form 656, or any payment is made on the offer
before the taxpayer's offer is accepted by the
Service, these payments are treated as deposits and
not collections of tax. The Record of OIC, Form
2515, is used to process these payments. Once the
offer is determined to be processable, the deposit
is attached to Form 2515 and, forwarded via
overnight delivery to the Campus OIC Unit.
- If the taxpayer's offer is
rejected or withdrawn and the taxpayer paid an
amount with Form 656, the Service is required to
refund the deposit when the offer is processed by
the Campus. The taxpayer, however may authorize the
application of the deposit amount to any outstanding
liability. This is done using Form 3040,
Authorization to Apply Offer in Compromise Deposit
to Liability.
- Form 3040 is executed by
the taxpayer after the offer case is completed if
the taxpayer wants the deposit amount applied to any
outstanding liability. The completed Form 3040 is
forwarded to the Campus OIC Unit along with the OIC
file upon closing/final processing of the case.
5.8.25.3 (01-01-2000)
Statutory Period of Limitation
- The normal statutory
period for collection purposes is ten years from the
assessment of the tax liability.
- The Offer in Compromise,
Form 656, provides that the taxpayer agrees to the
waiver and suspension of the running of the
statutory period of limitations on both assessment
and collection of the liability sought to be
compromised for the period the offer is pending,
during the period any offered amount remains unpaid,
during the time that any term or condition of the
offer remains unsatisfied, and for one additional
year thereafter.
-
The waiver must be
executed by the Service to acknowledge
agreement to the suspension period.
-
The Service does
not sign the waiver of the statute of
limitations until the taxpayer's offer is
determined to be processable.
-
When the offer is
formally rejected by the Service, or
withdrawn by the taxpayer, the statute of
limitations begins to run again.
- Effective January 1, 2000,
the waiver can no longer be used. The statute of
limitations will be suspended (by statute) only
during the period the offer in compromise is
considered pending by the IRS.
- Waivers secured before
January 1, 2000 will have no effect after December
31, 2002.
- The Offer in Compromise
DOES NOT extend the statute for additional tax
assessments or overpayments. Steps should be taken
to protect the interest of the Government before the
statutory period expires.
- IRC Section 6511(a)
prescribes the period of limitation for a refund of
tax. Offer to compromise are not considered for tax
amounts that have already been paid.
- If the taxpayer submitted
an offer to Appeals during a Due Process (CDP)
proceeding, the statutory period of limitations is
suspended by law until a final determination is
reached. Final determination occurs after the Office
of Appeals issues a determination, and an expiration
of the taxpayer's right to judicial review, or after
a final determination by the court. This suspension
could exceed the pending period of the offer.
Taxpayers who submit offers to Appeals during an
Equivalent appeal proceeding are not entitled to a
suspension of the statutory period, provided for in
IRC Section 6320 or 6330 (CDP).
5.8.25.4 (01-01-2000)
Innocent Spouse Procedures
- In processing an offer
with an "innocent spouse" issue, once an innocent
spouse determination is made, the Master File joint
assessment is transferred to a Non-Master File
assessment established on the liable spouse. This
can be done on the bottom portion of Form 3870,
Request for Adjustment. The examiner must be
specific on the exact amount of tax for each spouse.
In such instances, all time is charged to indirect
activity code 720.
5.8.25.5 (02-01-2004)
Examiner's Time
- Offer in Compromise cases
are received in Technical Services Examination for
control (by the Compliance Examination OIC
Coordinator) and are then sent to the examination
group.
- Time applied to
investigating an OIC is charged (below the line) to
activity code 720. If it is determined that a tax
adjustment should be made, time spent examining
books/records and preparing the report is charged
directly to the case (return). Time spent preparing
the rejection/withdrawal memorandum and taxpayer
letters is charged to activity code 720.
- If all time was charged to
indirect exam time activity code 720:
-
Return not on AIMS
and ordered under source code 45—Form 5344
is not submitted when the case is closed
from the group; return is surveyed using
disposal code 45.
-
Return on
AIMS—Close using Form 5344 and original
source code.
5.8.25.6 (01-01-2000)
Return Controls
- For AIMS purposes, the
statute is controlled under Claim status AA alpha
code if he normal statute has expired.
- In some situations, the
case file may not include the administrative file
and tax return. A copy of the return should be
secured from the taxpayer or internally.
- If the return is still
reflected on AIMS when the offer in compromise was
received, command codes ESTAB and AMSTUR should be
used to order and establish he return. The
originating source code is retained. ERCS controls
must be reopened manually.
- If the return is not on
AIMS when the offer in compromise is received, the
return should be ordered using source code 45. The
source code and status code are updated to 73 and
12, respectively, once it is determined that a tax
adjustment should be made.
- Tax abatements for
accepted OICs
are completed using Form 3870. All other tax
abatements (in arriving at correct tax) are
completed on report Form 4549, Income Tax
Examination Changes.
5.8.25.7 (02-01-2004)
Dual Notice Requirement
- Section 3201 of the IRS
Restructuring and Reform Act of 1998 requires that,
wherever practicable, any notice relating to a joint
return be sent separately to each individual filing
the joint return.
- This requirement also
applies to offers in compromise filed on joint
liabilities. See IRM 4.10, Examination of Returns,
for a description of applicable correspondence and
notice procedures. In general, the dual notice
requirement applies to letters issued as described
within this chapter.
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