Actions on Accepted Offers

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Possible Actions on Accepted Offers

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5.8.9  Possible Actions on Accepted Offers

5.8.9.1  (05-15-2004)
Overview

  1. During the time an accepted offer is monitored, a determination to terminate or rescind an existing compromise agreement may need to be made. A determination whether to compromise an existing accepted offer may also be considered. This chapter addresses the situations which lead to the need for such decisions to be made and the procedures to follow.

5.8.9.2  (02-04-2000)
Rescission of Accepted Offers

  1. An offer is an agreement which is binding and conclusive on both the government and the proponent, and precludes further inquiry into the matters to which it relates unless fraud or a mutual mistake is identified.
  2. An offer may be rescinded or set aside when there was a mutual mistake as it relates to a material fact or a false representation that was made by one party.
  3. A "mutual mistake" is defined as an erroneous belief held by both parties about the facts as they exist at the time the contract was entered into. The law in existence at the time of the making of the contract is part of the total state of facts at the time. The parties' mutual mistake with respect to the law, as found in statute, regulations, judicial decisions, or elsewhere, may render the compromise subject to rescission.
  4. The mere fact that both parties are mistaken with respect to the same basic assumption about an existing fact, does not, of itself, provide reason for the affected party to void the contract. Rescission is only appropriate where a mistake of both parties has such a material affect on the agreed exchange of performance that it upsets the very basis of the offer in compromise.
  5. To constitute fraud or false representation, the following must be present:
    1. It must appear that the representations related to material facts were false.
    2. The maker knew the facts to be false.
    3. The facts were made for the purpose of inducing, and did induce the other party to make the contract, and that the latter had the right to rely on them, and did rely on them, thereby sustaining injury.

     

  6. If the offer was accepted by Appeals, the offer should be sent to the appropriate Appeals office to make the determination that the offer should be rescinded.

5.8.9.2.1  (05-15-2004)
Rescission Procedures

  1. Rescind an offer in the following manner:
    1. Prepare a letter to the taxpayer identifying the offer by the day it was accepted, and advising that the acceptance of the offer is rescinded and the acceptance letter is revoked.
    2. Include in the letter the grounds for rescission in general terms with a demand for payment of the unpaid tax liability.
    3. All rescission determinations must be reviewed and approved by counsel before a rescission letter is forwarded to the taxpayer.
    4. Document the basis for the decision to rescind and any taxpayer contact on AOIC.
    5. The letter will be signed by the same level of approval that accepted the offer.

     

5.8.9.3  (05-15-2004)
Potential Default Cases

  1. An offer can reach a potential default status in one of three ways:
    1. The taxpayer failed to make timely payment of the amount due based on the terms of the offer or a related collateral agreement;
    2. The taxpayer has not adhered to the compliance provisions of the compromise.

      Note:

      Offers accepted after December 31, 1999 contain a clause relating to the severability of joint offer periods when a joint Form 656 is accepted. The severability clause will be applied to all joint offers, including those accepted prior to 1/1/2000.

       

    3. Taxpayer failed to return an erroneously issued refund.

     

  2. Campus Monitoring Offer in Compromise (MOIC) units have responsibility and authority to make determinations on potential offer default cases. IRM 5.19.7.3 provides procedures for the MOIC Unit employees on potential offer default cases.
  3. The MOIC unit will make an attempt to secure compliance. If the taxpayer fails to comply with any requests for delinquent returns and/or payment, the MOIC unit will default the offer. After all appropriate letters have been sent, generate a TDI or TDA, as appropriate and close the case as a default.

5.8.9.4  (05-15-2004)
Compromise of a Compromise

  1. The compromise of a compromise should be rare in light of the investigation completed in connection with the original offer. However, in cases where the taxpayer is unable to pay the balance of an accepted offer and/or the balance of the contingent liability under the terms of a collateral agreement and the investigation reveals that extreme hardship or special circumstances exist that would justify that a default is not in the best interest of the government, the Service has the option to:
    1. Adjust the payment terms of the offer,
    2. Formally compromise the existing compromise, or
    3. Obtain managerial approval to settle the offer for the amount already paid and not default the offer.

     

5.8.9.4.1  (05-15-2004)
Authority to Compromise Under a Compromise Contract

  1. The Commissioner is authorized to accept an offer of an accepted offer.
  2. A proposal to compromise the balance of an accepted offer must rest on Doubt as to Collectibility (DATC).

5.8.9.4.2  (05-15-2004)
Receipt and Processing

  1. The office of jurisdiction that initially accepted the offer will consider the taxpayer's proposal.
  2. No offer form (such as Form 656) is prescribed for use in submitting such a proposal. The proposal should be made in letter format. Upon receipt of the proposal, add a history entry to AOIC indicating that an offer on the offer has been received and notify the Monitoring Offer in Compromise (MOIC) unit that the offer should not be defaulted until the results of the investigation are known.

    Note:

    For ICS, create an OI or CIP to control the taxpayer's proposal. When closing, be sure to note the results in the AOIC history.

     

  3. The total amount offered to satisfy the balance due under a compromise contract must be fully paid no later than 10 calendar days after a notice of acceptance is issued. The taxpayer may:
    1. Enclose full payment of the proposed amount with the proposal.
    2. Pay part of the proposed amount with the proposal and pay the balance when notice of acceptance is received.
    3. Full pay the proposed amount within 10 calendar days of the date the notice of acceptance is received.

     

  4. The proposal letter should be addressed to the Commissioner of Internal Revenue Service and must conform to pattern Letter 1603(P) as printed in Exhibit 5.8.9-1.
  5. The taxpayer must submit a current financial statement(s) and all required supporting documentation.

5.8.9.4.3  (05-15-2004)
Consideration of Proposal

  1. The consideration of such a proposal will be made by the office of jurisdiction that originally accepted the offer. Acceptance will depend on:
    1. If it is in the best interest of the Government; and
    2. If the same considerations and merits were applied as if it were submitted on a Form 656.

     

  2. The information required to support the proposal should fit the case. Such as:
    • Copy of taxpayer's most recent income tax return or Command Code (CC) RTVUE/BRTVU print.
    • Estimate of the remaining liability under the terms of the future income collateral agreement, if applicable.
    • Reasons why the request is being made to compromise the existing agreement.
    • Full compliance check.
    • Statement of current financial condition.
    • Description of future prospects and any other information which might have a bearing upon the acceptability of the offer.
    • Estimated and projected amount of future income over the period covered by the remaining terms of the original offer in compromise agreement.

     

  3. Compare the amount of the taxpayer's offer and the amount which is anticipated to be recouped under the remaining terms of the original offer agreement.

5.8.9.4.4  (05-15-2004)
Processing Completed Investigations

  1. When the investigation is complete, the taxpayer's proposal, investigative report, and memorandum containing a complete statement of the facts in the case including the recommendation should be forwarded to the next level of authority for approval.
  2. An acceptance or denial letter should be prepared for the delegated official. (See Exhibits 5.8.9–2 and 5.8.9–3)
    If… Then…
    The taxpayer's proposal is acceptable The procedures for acceptance of original offers will be followed which include an opinion of counsel as set forth in IRM 5.8.8.
    The offer is accepted The acceptance file will contain the following:
    • Copy of Acceptance Letter
    • Taxpayer's proposal
    • Memorandum supporting the compromise of a compromise
    • Work papers and financial information
    • Original acceptance recommendation, if available.
    The proposal is not acceptable Forward to the delegated official for approval and signature. Include:
    • Denial Letter (return without appeals)
    • Taxpayer's proposal
    • Memorandum supporting the examiners recommendation
    • Offer case file
     

    Note:

    No appeal rights are granted to the taxpayer.

     

  3. Update the AOIC history with the results of the investigation. If the proposal is accepted, include in the AOIC history the amount of the accepted proposal and the terms for payment.
  4. Once the decision letter has been signed and mailed the Other Investigation (OI) or CIP should be closed. There is no open AOIC record. The closed file should be mailed to the appropriate Monitoring Offer in Compromise (MOIC) unit for monitoring, if accepted, or defaulting if it was not accepted.

5.8.9.5  (05-15-2004)
Overlooked Periods

  1. Occasionally additional periods or years are discovered subsequent to the acceptance of an offer. When such liabilities are discovered, the offer agreement may be modified to include the additional period(s) as long as both the Service and the taxpayer are in agreement. The tax must have been assessed prior to the issuance of the notice of acceptance. Such modification would not require a determination of "mutual mistake of material fact. "
  2. If the overlooked periods are discovered by the local office then they should secure the original offer file and have the taxpayer add the omitted period(s) to the original offer. A pen and ink change should be made to the Form 7249 including the additional period(s). The appropriate officials must then initial the recommended changes to the Form 7249. The AOIC history must be documented indicating the period(s) added. The case file must then be returned to the Monitoring Offers in Compromise (MOIC) unit.
  3. If the overlooked periods are discovered by the Monitoring Offer in Compromise (MOIC) unit then they should send the file back to the original appropriate Area office or COIC site for consideration of whether to include the periods, per (2) above.

Exhibit 5.8.9-1  (05-15-2004)
Pattern Letter 1603(P)

Proposal letter to compromise balance due on offer in compromise and/or to compromise future income collateral agreement contingent liability. The bolded information is to be added for a collateral agreement.
Commissioner of Internal Revenue
Washington, DC 20224
 On [enter date from upper right corner of acceptance letter] you accepted [my/our] offer in compromise and the related Form [2261, Collateral Agreement, Future Income –Individual; or 2261–A, Collateral Agreement, Future Income–Corporation]. [I/we] agreed to pay $[enter amount from Form 656, Offer in Compromise; if you amended Form 656, you must take this information from the latest amendment] to compromise the tax liability(s) listed below:
[List type(s) of tax and period(s) from Form 656 or the latest amendment, if applicable.]
 Instead of future payments specified in Form [2261; or 2261–A], [I/we] propose to pay [enter amount you are offering to pay] in full settlement of the original offer and the collateral agreement . [Also select one of the following sentences to describe how you will pay the amount you entered in the previous sentence:
 [I/we] have enclosed full payment of the proposed amount.
 [I/we] will make full payment of the proposed amount when you notify [me/us] that you have accepted  [my/our] proposal.
 [I/we] have enclosed $[enter amount you are sending with this letter] and will pay the balance when you notify [me/us] that you have accepted [my/our] proposal.]
 [If your original offer was submitted on a Form 656, Offer in Compromise, with a revision date of February, 1992, or later, please insert the following sentence:
[I/we] agree to file and pay all taxes as required by the Internal Revenue Code for five years from [enter the date from the upper right corner of the acceptance letter.
 [I/we] agree to waive any and all claims to overpayments of tax or other liabilities, including interest on those payments, that I may be entitled to receive under the Internal Revenue Code. This waiver is limited to overpayments which haven't already been refunded to me for any years or tax periods which end before or during the year you accept this proposal.
 [I/we] have enclosed a letter with this proposal which contains the detailed reasons for submitting this offer and a completed financial statement showing [my/our] current financial condition.
[Enter your signature and today's date.
   Each person who is submitting this proposal must
sign here.]
Enclosure:

Exhibit 5.8.9-2  (05-15-2004)
Pattern Letter 1604(P)

Acceptance letter for proposal to compromise balance due on offer in compromise and/or collateral agreement. The bolded information is to be added for a collateral agreement.
Date: Social Security or Employer
  Identification Number:
Salutation Person to Contact:
   
  Telephone Number:
 We accept your proposal to pay $---- to settle the remaining liability under the offer in compromise accepted on Enter Dateand/or the related collateral agreement.
 Since you have paid the amount proposed, you do not need to take further action. (or: Since you enclosed $---- with your proposal, please send the balance of $---- by Enter Date) (or: Since payment was to be made on notice of acceptance of your proposal, please send $---- by Enter Date.)
 Your check or money order should be made payable to the United States Treasury and sent to (service center address Attn.: Collection Offer Unit).
 If you receive a refund that you specifically waived under the terms of your proposal, please return it promptly to the service center, to the attention of the Offer Unit.
 If you have any questions, please contact the person whose name and telephone number are shown above.
  Sincerely yours,
  (Signature and title)

Exhibit 5.8.9-3  (05-15-2004)
Pattern Letter 1607(P)

Denial of proposal to compromise balance due on offer in compromise and/ or collateral agreement. The bolded information should be added for a collateral agreement.
Salutation  
We are sorry, but we cannot accept your proposal dated ---- to compromise the remaining liability under the offer in compromise accepted on Enter Date(and/or related collateral agreement).
(Explain reasons)  
We must, therefore, ask you to comply with the terms of the offer in compromise including any collateral agreement. If you have any questions, please contact (name, Internal Revenue Service Center, address, telephone number).
  Sincerely yours,
  (Signature and title)

Exhibit 5.8.9-4  (05-15-2004)
Default Letter

Failure to Comply with the terms of an accepted offer in compromise and/or related collateral agreement. The bolded information should be added for a collateral agreement.
Salutation:  
 This refers to our letter of [date], accepting your offer of $[amount], in compromise of your [kind of tax] tax liability, plus statutory additions, for [years or tax periods]. Your offer included your agreement to the default provisions, waiver of refunds, payment of interest, and other terms provided on the Form 656.
 Also included was a related collateral agreement(s) you submitted as additional consideration for acceptance of your offer.
 Under the terms of your offer, $[amount] was to be paid as follows:
[Quote terms of payment shown on Form 656]
 The collateral agreement(s) provide that you must file annual income statements and pay graduated percentages of annual income for the years [date] through [date].
 Our records show that you did not comply with the terms of the offer and collateral agreement(s) [specify reason for non-compliance], therefore your offer in compromise is declared in default and the agreement to compromise the original liability is terminated. All payments on the offer and collateral agreement(s) will be applied to the original liability.
 Please contact [name, address, and telephone number] if you have any questions and to discuss payment of the remaining amount of the original liability.
  Sincerely yours,
  [signature and title]
 

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