SB/SE Memo Addresses Offer in Compromise Procedures

Expiration Date: April 25, 2024
Impacted IRM: 5.8.2, 5.8.3, 5.8.4, & 5.8.7

Date: April 25, 2022

MEMORANDUM FOR
DIRECTOR, SPECIALTY COLLECTION OFFER IN
COMPROMISE, SB/SE

FROM:
KAREEM WILLIAMS
ACTING DIRECTOR, COLLECTION POLICY, SB/SE

SUBJECT:
INTERIM GUIDANCE ON FEDERAL TAX DEPOSIT
COMPLIANCE FOR OFFERS IN COMPROMISE

Purpose

This memorandum issues guidance on the appropriate compliance necessary regarding federal tax deposits for businesses and offer in compromise submission. Please distribute this information to all affected employees within your organization.

Background

Currently federal tax deposit (FTD) compliance for a business that submits an offer is limited to the quarter the offer is submitted and the succeeding quarters.

Procedural Change

The applicable IRM sections and Form 656-B, Offer in Compromise Booklet (April 2022 revision) will be updated to include the requirement for

the taxpayer to make all required federal tax deposits for the current quarter and the two preceding quarters prior to offer submission. The taxpayer must continue to stay in federal tax deposit compliance through the investigation of the offer and through the monitoring period for accepted offers.

Form 656-B (April 2022 revision) instructs business taxpayers with employees that they must have made all required federal tax deposits for the two preceding quarters and the current quarter prior to submitting an offer. If the taxpayer has not made all the required federal tax deposits, their offer will not be processed. In addition, the taxpayer must remain current on all filing and deposit requirements while the IRS is investigating the offer.

5.8.2.4.1

To verify FTD compliance, research IDRS to ensure the business taxpayer is current with FTDs for the two prior quarters and current quarter of offer submission. If the taxpayer has outstanding balances in a status other than 10 or 12 for either of the two prior quarters when the offer is submitted, return the offer as not processable.

5.8.3.6

The taxpayer needs to be in compliance with FTDs for the current quarter. If not, then request the taxpayer provide verification of compliance including any delinquent FTDs via the combination letter. If an employment tax return for the two prior quarters has not posted review the file for copies and compare to the FTDs on IDRS for compliance. If the taxpayer makes the required payments or confirms FTDs are sufficient, continue processing the offer. If not, return the offer.

Note: Do not review the previously assessed tax returns to determine if the taxpayer made timely FTDs. If the taxpayer has a zero balance on the prior returns but incurred penalties paid in full, then this is considered in compliance for offer processability purposes.

5.8.4.6

5.8.4.6(1) Prior to beginning an RCP or full pay calculation, the OE/OS must determine if any compliance issues are present, i.e., unfiled returns, missing Tax Increase Prevention and Reconciliation Act (TIPRA) payments, missing estimated tax (ES) payments, and/or failure to be current on federal tax deposits (FTDs). The taxpayer must be current with FTDs for the two preceding quarters prior to offer submission, through the current quarter of offer submission, and during the investigation of the offer.

Note: Taxpayers are considered in compliance if any FTDs are brought current and any resulting penalty paid in full (status 12).

Refer to IRM 5.8.7.2.2.3, Return for Failure to Make Timely Federal Tax Deposit, relative to returning for failure to make timely federal tax deposits. If the taxpayer does not provide current acknowledgement numbers, verify FTDs on IDRS using CC EFTPS.

Note: Compliance requirements for FTDs do not apply to doubt as to liability offers.

Note: Area offices may establish procedures to conduct this compliance screening on offers awaiting assignment to an OS. This initial screening prior to assignment may be completed by a Tax Examiner.

5.8.4.6(5) If the taxpayer/representative was previously provided the opportunity to pay a shortfall in required ES payments or FTDs and advised that failure to continue making these required payments would cause the offer to be returned, the OE/OS is not required to make an additional request for payment. If the taxpayer was advised to submit an ES or FTD shortfall, before returning the offer, the OE/OS must ensure the taxpayer/representative has not communicated a change in circumstance that reduces or eliminates the payment due. If it is unclear whether the taxpayer's circumstances may have changed, then the taxpayer/representative should be contacted to verify if the taxpayer's situation has changed and/or the payment(s) are not due.

Note: If the taxpayer has a zero balance on the prior returns but incurred penalties paid in full (status 12), this is considered in compliance for initial screening purposes.

5.8.7.2.2.3

(7) The taxpayer must be current with FTDs for the two preceding quarters prior to offer submission, through the current quarter of offer submission, and during the investigation of the offer. If it is determined at any time during the investigation that the taxpayer is not current with FTD(s) and the taxpayer has not previously been afforded an opportunity to get into compliance, contact the taxpayer by telephone and request the missing deposits. Allow the taxpayer 15 calendar days to make the deposit(s) and/or provide documentation of a reduction in the required deposit. Advise the taxpayer that any future missed deposits will result in immediate return of the offer without appeal rights and with no additional contact. Document the case history with the results of the discussion or attempted contact.

(8) If telephone contact cannot be made, a letter must be prepared and mailed to the taxpayer requesting the missing FTD(s). Allow 15 calendar days from the date of the letter for the taxpayer to respond or make up the missed deposit(s) (plus mail time as appropriate), before taking the next action. Document the case history.

(9) If the taxpayer was previously provided the opportunity to pay a required FTD and advised that failure to make these required payments would cause the offer to be returned, the OE/OS is not required to provide the taxpayer additional time to submit the payment. Ensure the taxpayer/representative has not communicated a change in circumstance that reduces or eliminates the payment due. If it is unclear whether the taxpayer's circumstances may have changed, contact the taxpayer to determine if payment(s) are due before proceeding.

Effect on Other Documents

This guidance will be incorporated into Form 656, IRM 5.8.2, Centralized Offer in Compromise Initial Processing and Processability, 5.8.3, Centralized Offer in Compromise Transfers, Perfection, and Case Building, IRM 5.8.4, Investigation, and IRM 5.8.7, Return, Terminate, Withdraw, and Reject Processing.

Effective Date

This interim guidance is effective with the publishing of the Form 656-B April 25, 2022. There is a thirty-day grace period for the submission of the new Form 656 (revision 4-2022). Due to the grace period of the new Form 656, utilize the chart below for April 25, 2022, through May 25, 2022 offer receipts.

Form 656 Revision	IRS Received Date April 25, 2022 - May 25, 2022 (30 Day Grace Period)	IGM 2 Preceding Quarters FTD Compliance Applies
April 2021	Yes	No
April 2022	Yes	Yes

Offers received May 26, 2022, or after must be on the April 2022 revision with the FTD compliance applying to the prior two quarters.

Impact on Offers in Process

This does not affect offers already in process if the taxpayer was not current with federal tax deposits for the two previous quarters.

If the taxpayer submits a processable offer on the April 2021 revision and the OE/OS later secures an amended Form 656 using the April 2022 revision, the FTD compliance requirements will be dictated by the contract language in the original Form 656.

Contact

If you have any questions regarding this memorandum, contact C. Nicole Highsmith, Analyst, OIC Collection Policy.

cc:
Director, Headquarters Collection
Director, Collection Policy
Director, Field Collection
Director, Independent Office of Appeals