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Part 8. AppealsChapter 23. Offer in Compromise

8.23.3. Evaluation of Offers in Compromise


8.23.3. Evaluation of Offers in Compromise

8.23.3 Evaluation of Offers in Compromise

Manual Transmittal

August 18, 2017

Purpose

(1) This transmits revised IRM 8.23.3, Offer in Compromise, Evaluation of Offers in Compromise. Revised to include changes to Appeals guidance as it pertains to the OIC program and the other editorial changes noted in the table below:

Material Changes

(1) Revised to include the following changes:

IRM Section

Description of Change

8.23.3.1.1.1

At (1)(e), added clarifying language regarding Unassessed Liabilities. Renumbered existing (1)(f) to (1)(g). Added new (1)(f) pertaining to No Liabilities, (1)(h) pertaining to deposit and low income certification, and (1)(i) pertaining to Unfiled Tax Returns. At former (2), deleted reference to pre-2006 OICs.

8.23.3.3

At (5), indicated in the Note that the filing of a tax return that comes due while a protest is under review does not constitute any admission of additional assets or income. At (6), added clarifying language pertaining to what issues Appeals will not consider, and added that tax returns secured by Appeals should be evaluated only for the taxpayer’s filing and payment compliance. At (7), clarified the age of a financial statement in Appeals.

8.23.3.3.1

At (5), removed references to Letter 4141 and replaced Letter 4462 references with Letter 5576. Added additional taxpayer contact criteria. added content from Interim Guidance Memorandum AP-08-0615-0006, Interim Guidance on Initial Case Actions for Offers in Compromise and Collection Due Process/Equivalent Hearings, dated June 9, 2015, to update the time frame for issuance of the SCL.

8.23.3.3.1.1

New section titled Consideration of New Issues

8.23.3.3.1.2

Revised and retitled section as Request and Review of Supplemental Information - Collection Issue Offers, and added clarification as to when to request supplemental information.

8.23.3.3.1.3

New section titled Determining When to Send an Appeals Referral Investigation (ARI) . Added examples for when an Appeals Referral Investigation generally should or should not be used.

8.23.3.3.1.4

New section titled Requesting an Appeals Referral Investigation (ARI), including process instructions for routing of an ARI.

8.23.3.3.1.5

Relocated former section Coordination with Other Functions from 8.23.3.3.1.1. At (4), added consulting with IRS Counsel and DOJ concurrence for acceptance of an offer that includes liabilities under DOJ jurisdiction.

8.23.3.3.2

At (2), added clarifying language pertaining to what issues Appeals will not consider. At (8), added IRS telephone assistance numbers.

Former 8.23.3.3.2.6

Removed this section and incorporated the guidance at revised 8.23.3.3.1.3 and 8.23.3.3.1.4

8.23.3.4

Revised for general comments and as an introduction to amended offers.

8.23.3.4.1

New section titled Amended Offers - Change in Basis or Other Circumstances

8.23.3.4.2

New section titled Amended Offers - Form 656 and Form 14640 Addendum

8.23.3.4.3

New section titled Amended Offers - TIPRA Related Issues

8.23.3.4.4

Incorporated guidance from former 8.23.3.4.1 Mandatory Withdrawal Procedures for Amended Periodic Payment Offers Received by Appeals

8.23.3.5

Added (1) to clarify the inclusion of a collateral agreement is not considered raising a new issue by Appeals.

8.23.3.6

At (2) and (3), removed guidance and examples pertaining to pre-2008 OICs. At (4), added a note pertaining to taxpayers who document fraud by a payroll service provider.

8.23.3.6.1

At (1), added a Note pertaining to taxpayers who document fraud by a payroll service provider.

8.23.3.9

Removed former section, Consideration of "Obvious Full Pay" Offers.

8.23.3.9; 8.23.3.9.1; 8.23.3.9.2; 8.23.3.9.3; 8.23.3.9.4

Revised to include Specialty taxes.

8.23.3.9.2

At (2), revised to include the use of Form 5402 when making a referral to Exam or Specialty.

8.23.3.9.3

At (1), revised to include use of Form 5402 when making a referral to Exam or Specialty.

8.23.3.9.9

Added new 8.23.9.9 pertaining to DATL offers and IRC 6673 penalties from previously published guidance in IRM 8.22.8.10.2.

8.23.3.9.10

Formerly 8.23.9.9. At (1) and (3), included language to use the Letter 5521 when communicating to the taxpayer acceptance of a DATL offer. At (7) added that a DATL offer will not be considered if the liability was previously resolved with finality.

8.23.3.13

At (2), added note to state that an ACA Shared Responsibility Payment (MFT 35) will not default an offer. At (10), clarified that an offer determined to be in default does not have to be defaulted, but may be closed under Compromise of a Compromise procedures for amounts already paid.

8.23.3.14

At (5), clarified that Compromise of a Compromise cases may generally be assigned to field or Campus teams, but most often to Brookhaven Appeals. At (9) and (10), clarified documentation requirements for acceptances.

8.23.3.15

New section titled Offer Rescission Considerations

8.23.3.16

New section titled Identity Theft Issues

In General

Revised for grammar, plain language and other editorial changes

In General

Updated IRM cross-references

In General

As a result of the above changes, some renumbering of this IRM has occurred. Appeals employees should become familiar with those sections they use most.

Effect on Other Documents

IRM 8.23.3 dated October 15, 2014, is superseded. Incorporates procedural and editorial changes to guidance that pertains to the OIC program. This IRM also incorporates Interim Guidance Memorandum AP-08-0615-0006, Interim Guidance on Initial Case Actions for Offers in Compromise and Collection Due Process/Equivalent Hearings, dated June 9, 2015.

Audience

Appeals Employees

Effective Date

(08-18-2017)


Anita M. Hill
Director, Case and Operations Support

Consideration of Doubt as to Collectibility Offers

(1) The purpose of this section is to provide the Appeals hearing officer with the procedures necessary to properly evaluate a taxpayer's appeal of a rejected offer in compromise (OIC). Appeals does not have its own set of rules or procedures for determining reasonable collection potential (RCP) in an OIC case. For this reason, this section largely does not reiterate what is already in IRM 5.8, Offers in Compromise. Rather, it discusses some of the more basic elements of the OIC evaluation process and provides guidance unique to Appeals' role in the OIC process.

(2) Collection, under the Commissioner, Small Business/Self Employed (SBSE), is responsible for processing and analyzing a taxpayer's offer, negotiating with the taxpayer, making an RCP determination and communicating the final determination to the taxpayer. IRM 5.8.4, Offer in Compromise, Investigation, and IRM 5.8.5, Offer in Compromise, Financial Analysis contain OIC guidance concerning:

  • Components of collectibility

  • Procedures for evaluating specific types of taxpayers and tax debts, including trust fund, excise, partnership, and child support liabilities

  • Financial analysis, including determining equity in assets and a taxpayer's future ability to make payments

  • Issues involving the dissipation of assets

  • Financial information documentation and verification requirements

  • Payment terms

(3) If the hearing officer determines that the taxpayer cannot pay in full or there are circumstances that otherwise place collectibility in doubt, there is a legal basis for compromise under IRC 7122, based on doubt as to collectibility. If the taxpayer has the ability to pay in full, there may still be a legal basis for compromise if it is further determined that such compromise would promote effective tax administration. See IRM 8.23.3.8 for guidance on Effective Tax Administration (ETA) offers.

Note: An offer based upon doubt as to collectibility with "special circumstances" will be evaluated using the same criteria as an ETA offer.

(4) Policy Statement P-5-100 (IRM 1.2.14.1.17) states, in part:

The Service will accept an offer in compromise when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. An offer in compromise is a legitimate alternative to declaring a case currently not collectible or to a protracted installment agreement. The goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the Government.

(5) The hearing officer should research IRM 5.8 and related interim guidance to evaluate Compliance actions, decisions and valuation methods for Offers in Compromise. When evaluating an appealed rejection, consult IRM 5.8 and any related interim guidance as a reference to ensure that Collection properly followed their procedures. The hearing officer’s evaluation of an OIC must be independent of the decision rendered by Collection. Standard Appeals conference practices are found in IRM 8.6.1, Conference and Settlement Practices, Conference and Issue Resolution.

(6) The hearing officer will not request information or evidence (from any party) solely for the purpose of strengthening the government's case.

(7) IRC 7122(d)(2) requires IRS to publish schedules of national and local allowances designed to ensure that taxpayers seeking to compromise their tax debts have an adequate means to provide for basic living expenses. This section further requires that IRS (including Appeals) "shall determine, on the basis of the facts and circumstances of each taxpayer, whether the use of the schedules published under IRC 7122(d)(2)(A) is appropriate and shall not use the schedules to the extent such use would result in the taxpayer not having adequate means to provide for basic living expenses."

  1. If national or local standards for determining allowable living expenses are updated after Collection rejects an offer, the hearing officer will use the most current or updated Allowable Living Expense (ALE) standards unless the case has already been submitted for final review and approval by the Appeals Team Manager (ATM) and/or Counsel.

  2. A taxpayer must be able to substantiate that limiting the allowance to the national or local standard would not provide for their basic living expenses.

  3. Allowances in excess of national or local standards must be documented in the Appeals Case Memorandum (ACM).

(8) If the taxpayer disagrees with the rejection of an offer by Collection, they can request Appeals' consideration and review of the determination. The appeal must be in writing. Form 13711, Request for Appeal of Offer in Compromise, is generally used but is not required.

(9) Hearing officers who evaluate appeals of rejected OICs must be knowledgeable in the procedures detailed in IRM 5.8, other parts of the IRM, and the law and regulations governing OICs and Appeals, such as:

  • IRM 8.1.1, Appeals Operating Directives and Guidelines

  • IRM 8.2, Pre-90-Day and 90-Day Cases (contains general information for all Appeals cases)

  • IRM 8.6.1, Conference and Issue Resolution

  • IRM 8.6.4, Reaching Settlement and Securing an Appeals Agreement Form

  • IRM 8.7.6, Appeals Bankruptcy Cases

  • IRM 8.21, Appeals Statute Responsibility

  • IRM 5.1, Field Collecting Procedures

  • IRM 5.7, Trust Fund Compliance

  • IRM 5.12, Federal Tax Liens

  • IRM 5.14, Installment Agreements

  • IRM 5.15, Financial Analysis

  • IRM 5.16, Currently Not Collectible

  • IRM 5.17, Legal Reference Guide for Revenue Officers

  • IRC 7122

  • Treas. Reg. 301.7122-1, for offers in compromise

  • Notice 2006-68, Downpayments for Offers in Compromise

  • Revenue Procedure 2012-18, concerning the prohibition of ex parte communications between Appeals and other IRS employees

  • Interim guidance issued by Appeals or other IRS functions

  • Other legal and administrative guidance, including local law

  • Note: The links to several IRM sections, IRC 7122, Treas. Reg. 301.7122-1, Notice 2006-68, and local law guides for all states (including community property states) are available on the Appeals OIC Web Page.

    Note: The additional resources listed above are not intended, and should not be used, to assist the hearing officer in the further development of issues that either were not identified or were not adequately developed by Collection.

The Tax Increase Prevention and Reconciliation Act of 2005

(1) The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) was enacted May 17, 2006, and became effective July 16, 2006. TIPRA brought about major changes to the OIC program, most of which do not affect non-CDP offers in Appeals. Notice 2006-68, Downpayments for Offers in Compromise, provides guidance on TIPRA issues until the regulations are updated.

(2) One significant change under TIPRA provides that an offer shall be deemed to be accepted if it is not rejected, returned or withdrawn before the date which is 24 months after receipt of the offer by IRS. See IRC 7122(f). This 24-month TIPRA period ends when the offer is rejected by Compliance, so most non-CDP offers considered by Appeals will not have open TIPRA statute issues. There are, however, instances in which a non-CDP OIC case arrives in Appeals with an open TIPRA statute, so the Appeals employee assigned the case must carefully review IRM 8.23.2.3, Initial Case Review and Statute Controls, to make sure the OIC work unit number (WUNO) contains the proper statute controls.

(3) The IRS began using Form 656-L, Offer in Compromise (Doubt as to Liability), in January 2006 for offers submitted under doubt as to liability (DATL). The Form 656 no longer includes doubt as to liability as an option because Notice 2006-68 provides that taxpayers submitting offers based only on doubt as to liability are not required to make TIPRA payments with the offers.

(4) IRM 8.23.1.4.1contains TIPRA information concerning:

  • OIC payment terms

  • Installment agreement in effect prior to receipt of the OIC

  • Taxpayer's right to designate offer payments

  • Appeals procedures for processing TIPRA payments

Processability Criteria and General Changes Resulting from TIPRA

(1) The IRS changed the rules for determining the processability of post-TIPRA offers. An offer will be deemed non-processable only if one or more of the following criteria are present:

  1. Taxpayer in Bankruptcy: An offer will not be considered during an open bankruptcy proceeding.

  2. Taxpayer did not submit the application fee with the offer: The appropriate application fee must be submitted or the taxpayer must have completed the low-income certification in section 1 of Form 656. Section 1 is available to individual taxpayers only. No application fee is required if the sole basis of the offer is DATL.

  3. Taxpayer did not submit the required initial payment with the offer: See IRM 8.23.1.4.1 for initial payment requirements. No initial payment is required if the sole basis of the offer is DATL.

    Note: If the taxpayer submits a portion (but not all) of the required TIPRA payment (either cash or periodic payment) then the offer will be considered processable.

  4. Department of Justice: The IRS may not process any offer to compromise a liability previously referred to the Department of Justice (DOJ) for prosecution or defense. If all liabilities have been referred to DOJ, the offer is not processable. If IRS retains jurisdiction of any tax liabilities, the offer is processable.

  5. Unassessed Liabilities: Offers submitted solely to compromise a tax period or tax year for which (1) there are no liabilities assessed to the taxpayer’s account, and (2) IDRS does not indicate a required return has been received, will be deemed not processable.

  6. No Liabilities: Offer submitted for which (1) there are no liabilities due on the taxpayer’s account, and (2) IDRS does not indicate an Exam or AUR assessment is being worked, will be deemed not processable.

  7. Offers submitted solely for tax periods with expired CSED(s): An offer will not be considered when the CSED(s) has expired for all liabilities sought to be compromised.

  8. Total amount of payment listed as a deposit and the taxpayer did not check the low income certification box: Beginning October 25, 2013, for offers where the taxpayer marked the total amount of the payment as a deposit, the entire amount will be considered a deposit making the offer not processable for failure to submit the required TIPRA payment. This procedure does not apply if the taxpayer marked the box for Low Income Certification in Section 1 of Form 656.

  9. Unfiled Tax Returns: Offers submitted solely to compromise a tax period or tax year where (1) IDRS does not indicate a required return has been received, and (2) there are no liabilities assessed to the taxpayer’s account, will be deemed not processable.

(2) The Centralized Offer in Compromise (COIC) sites perform all of the Service's processability reviews, including those for Appeals (CDP offers). If an offer based upon doubt as to collectibility is received without the application fee, initial offer payment, or the completion of the low-income certification in section 1 of the Form 656, COIC will review Form 433-A, Collection Information Statement for Individuals, and waiver criteria to see if the taxpayer meets the requirements for waiving the application fee and initial offer payment. If the taxpayer meets the low-income criteria in Form 656, COIC will consider the offer processable.

(3) Collection has procedures for handling cases where the determination that a taxpayer qualified for the Form 656 waiver was later found to be erroneous. However, the hearing officer will not become involved in addressing erroneous Form 656 qualification issues on a non-CDP offer. If Collection has granted the waiver for the taxpayer, do not revisit the issue.

(4) The TIPRA requirement for a taxpayer to make periodic installment payments while a periodic payment offer is being considered ends when Collection rejects the offer. Taxpayers are not required to continue making periodic installment payments while a rejected offer is being considered by Appeals unless Appeals secures an amended offer. See IRM 8.23.3.4 for additional guidance on amended offers secured by Appeals.

(5) If a taxpayer’s total liability was $50,000 or more at the time the offer was submitted, and a TIPRA payment submitted with the offer or TIPRA payments made during the course of an OIC investigation contributed to the total falling below $50,000 at the time the case is submitted for approval, the offer still requires an opinion from Counsel before acceptance. See IRM 8.23.4.2.2.

(6) The 24-month mandatory acceptance period provided for in IRC 7122(f) ends when Compliance rejects or returns the offer or when the offer is withdrawn or treated as withdrawn under IRC 7122(c)(1)(B)(ii) because the taxpayer failed to make the second or later installment payment due on a periodic payment OIC. See IRM 5.8.8.11. A non-CDP offer that was rejected by Compliance will not be deemed accepted if Appeals does not render a decision on the appealed offer within 24 months after the date the offer was submitted. (See IRM 8.23.2.3 for a listing of non-CDP offers received in Appeals that were not previously rejected by Compliance and thus have open TIPRA statutes). Appeals' responsibilities are considerably different with a CDP offer. SeeIRM 8.22.7 for procedures involving offers received as alternatives to collection in a CDP case.

Rejected Offers

(1) When evaluating offers, Collection contacts the taxpayer via telephone or letter explaining why they are proposing to reject the offer. This contact provides the taxpayer with the rationale and financial analysis for Collection’s preliminary conclusion and an opportunity for the taxpayer to supply additional information or, if applicable, to amend the offer to reflect the RCP determined by Collection.

  1. Collection is responsible for reviewing and verifying any information provided by the taxpayer before the offer is rejected and any new information provided by the taxpayer as part of the appeal of the rejection. See IRM 5.8.7. Collection should address each disputed item in its narrative or case history. If the taxpayer provided substantial information with the appeal that was not adequately considered by Collection, the hearing officer will not return the case as a premature referral. The hearing officer will weigh Collection’s development of the issue versus information and testimony provided by the taxpayer and make a decision based upon those factors. Unless it is at the taxpayer's request, information will not be reviewed by Appeals if it was located in the case file at the time of rejection, was available to Collection at the time of rejection, or provided by the taxpayer with the request for appeal and was not developed by Collection, shared with the taxpayer, and included on the Income/Expense Table (IET) or Asset/Equity Table (AET). See IRM 8.23.3.3 for certain exceptions.

(2) If Collection rejects the offer, copies of Collection's IET and AET should be attached to their rejection letter.

(3) As a result of the preliminary determination contact and IET and AET information provided with the rejection letter, a taxpayer should be fully aware of why the offer was rejected. The Form 13711, Request for Appeal of Offer in Compromise, though not mandatory, directs the taxpayer to provide in the appeal:

  • the disagreed item(s),

  • reason(s) for the disagreement, and

  • supporting documentation, as appropriate

Appeals can then try to narrow the focus of consideration to the specific issues for which the offer was rejected.

(4) The hearing officer will sustain rejections only for the reason Collection rejected the offer. For the exceptions to this rule, see IRM 8.23.4.3(2).

Appeals OIC Evaluation Procedures

(1) As stated in IRM 8.23.3.1, the hearing officer will research IRM 5.8 and related interim guidance to evaluate Collection actions, decisions and valuation methods for OICs. The hearing officer’s evaluation of an OIC must be independent of the decision rendered by Collection. Standard Appeals conference practices are found in IRM 8.6.1, Conference and Settlement Practices, Conference and Issue Resolution.

(2) The hearing officer must be knowledgeable in the procedures detailed in IRM 5.8, IRM 8.23, and other parts of the IRM and administrative policies and procedures such as those listed in IRM 8.23.3.1 above.

(3) The hearing officer will not re-examine agreed RCP issues that were previously addressed during the investigation by Collection. This does not include correcting errors that are strictly computational. A strictly computational error is one that does not involve judgment but involves simple math. Correcting strictly computational errors should be uncommon but may occur in the following general circumstances:

  • For the correction of simple mathematical errors anywhere on the Income/Expense Table (IET) or Asset Equity Table (AET) (such as addition or subtraction).

  • Where Collection fully developed an income, expense, asset or liability item, but did not record the value in the correct amount on the IET or AET.

  • To allow for a statutory tools-of-the-trade exemption that was erroneously excluded by Collection.

  • Where an asset value is present on the Form 433-A/B (OIC) that was prepared by the taxpayer, and the value was uncontested by Collection in its development of the case. The taxpayer’s value of the asset should be transferred to the IET/AET if it was not included.

  • In Appeals, where the taxpayer’s income is a disputed item that is increased or decreased by the hearing officer. Expenses for taxes related to that income should also be increased or decreased accordingly.

  • If the hearing officer made any correction to a strictly computational error, and the change resulted in a calculated full-pay of the liability, the hearing officer will sustain rejection of the offer absent effective tax administration conditions.

(4) Appeals employees will not attempt to identify and value any additional assets. In addition, Appeals employees should not revise the value of an asset to an amount that is higher than previously determined by Collection.

Note: The most current Allowable Living Expense (ALE) standards will be used by the Appeals employee when working an offer. Cases already submitted to the Appeals Team Manager (ATM) and/or Counsel for final review or approval will not be revised to update the ALE.

(5) In collection issue cases, the taxpayer may submit new information while the case is in Appeals. Any new information should be considered, particularly if it pertains to an issue disputed at the time of rejection. New information pertaining to an issue that was not in dispute at the time of rejection may also be considered if voluntarily provided by the taxpayer. See IRM 8.23.3.3.1.3 for guidance on information that should generally be referred to Collection for an initial review.

Note: A taxpayer may voluntarily reveal a new asset, additional income or other matter to Appeals. Appeals will not investigate the matter but, if more than a face value review is needed, the new issue may be forwarded to Collection via an ARI for initial review, investigation and valuation decision. The filing of a tax return that becomes due while the protest is under review by Appeals does not constitute a voluntary admission by the taxpayer of additional assets or income.

(6) A case will not be returned as a premature referral where Collection did not fully develop certain issues. Weigh Collection’s development of the issue versus information and testimony provided by the taxpayer, and make the decision based upon those factors. See also IRM 8.23.2 for premature referral issues on appealed OIC cases. Unless it is at the taxpayer's request, information will not be reviewed by Appeals if it was located in the case file at the time of rejection, was available to Collection at the time of rejection, or provided by the taxpayer with the request for appeal and was not developed by Collection, shared with the taxpayer and included on the IET or AET.

Note: Information that was available to Collection includes not only information in the case file, but information that was available internally such as filed tax returns or income, asset and related entity information available on IDRS. Tax returns that are due during Appeals’ consideration of an offer and are that are secured by Appeals should be evaluated only for filing and payment compliance.

(7) A financial statement that is less than 12 months old from the date it was received in Appeals will not be updated and will be considered verified since it was provided to Collection and they reviewed or had the opportunity to review it. Use the RECDATE of the OIC work unit to determine when the case was received in Appeals.

Example: A financial statement is 11 months old when received in Appeals. The hearing officer will not update the financial statement again unless it becomes older by 12 additional months and those additional months cannot be attributed to delay by IRS. See (8) below.

(8) The hearing officer will not contact the taxpayer to secure an updated financial statement if the information is less than 12 months old or if the information has become outdated as a result of IRS delay. However, in a situation where Appeals does need updated financial information from the taxpayer, an updated Form 433-A(OIC) and/or 433-B(OIC) is typically not necessary. "Pen-and-ink" changes to the existing Form 433-A/B are sufficient. See IRM 8.23.3.3.1.2, which pertains to review of supplemental information.

(9) The hearing officer is responsible for addressing taxpayer compliance obligations only as stated in IRM 8.23.2.4, Premature Referral Issues, and IRM 8.23.2.5, When the Taxpayer Does not Remain in Compliance.

(10) A taxpayer who had a periodic payment offer rejected by Collection is not required to continue making the periodic installment payments while the case is being considered in Appeals. See IRM 8.23.3.1.1.1. The TIPRA requirement to make periodic installment payments ended when Collection rejected the offer. However, if the hearing officer secures an amended periodic payment offer, then the taxpayer must once again start making the periodic installment payments proposed in the amended offer. See IRM 5.8.4.25 for guidance on TIPRA payment requirements for amended offers.

(11) Document all significant case actions in the case activity record in a timely, accurate and complete manner.

Pre-Conference Considerations

(1) This section contains preliminary evaluation procedures for cases that were not prematurely referred by Collection. After completing the required initial case review and statute control assessments (both TIPRA and CSED) found in IRM 8.23.2.3, the case is ready for initial evaluation.

(2) Review and become familiar with IRM 8.23.1 and with the conference and settlement practices found in IRM 8.23.1.3.

(3) The hearing officer must review the written appeal for the specific issues that are in dispute. If no specific issues are listed in the appeal, then the specific items of disagreement present on the IET/AET completed by Collection will be used to identify the issues. If necessary, the hearing officer may contact the taxpayer to confirm the items in dispute. The hearing officer will initially review and consider only the disputed issues. Keep in mind that the taxpayer may present new issues during the appeal.

(4) If the case requires verification of more complex items submitted after appeal, the hearing officer should issue an Appeals Referral Investigation (ARI) request to a Campus or Field OIC group. The hearing officer can locate the correct Campus or Field group by reviewing Collection’s rejection letter or Form 1271. See IRM 8.23.3.3.1.4, Requesting an Appeals Referral Investigation (ARI).

(5) Within 30 days of case receipt, the hearing officer should issue the initial contact letter, Letter 5576, Appeals Offer in Compromise Acknowledgement and Conference Letter. The initial contact:

  • Acknowledges receipt of the case.

  • Identifies the dispute.

  • Asks the taxpayer to provide any other information to substantiate their claims.

  • Identifies any compliance issues that must be remedied. See IRM 8.23.2.4 and its related subsections and IRM 8.23.2.5 for compliance issues to be addressed.

  • Sets clear expectations and a specific date for providing any additional information. Due dates for the additional information should be within the next 30 days of the date of the initial contact letter and before any scheduled conference date, unless circumstances warrant a longer period.

  • Schedules the conference.

  • Advises the taxpayer of the consequences of either not providing additional information by the established due date or failing to participate in the conference.

  • Advises the taxpayer that any new information that is provided may be referred to Collection for an initial review and comment.

  • Accrual of interest on an unpaid liability

  • The taxpayer’s right to representation

(6) The hearing officer will then:

  1. Review the information in the case file and the information provided by the taxpayer identifying any additional information that may be needed to verify the issues in dispute. See IRM 8.23.3.3.1.2 for procedures for requesting supplemental information.

    Note: The hearing officer will not request additional information to develop new issues or to bolster development of issues that may have been under-developed by Collection.

  2. Conduct the conference, including providing an explanation of the offer process, how an acceptable amount is computed and how the available financial data supports either acceptance or a sustained rejection of the offer. Be aware that the taxpayer may raise new issues and present new information during the appeal.

  3. Follow up in a timely manner 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 previously supplied financial information.

(7) If initial contact is made by telephone, cover all of the above items, which are contained in Letter 5576 , and document the case activity record accordingly.

Consideration of New Issues

(1) The hearing officer will review the taxpayer’s written appeal for the specific issues that are in dispute. If no specific issues are listed in the appeal, the specific items of disagreement present on the IET/AET completed by Collection will be used to identify the issues. If necessary, the hearing officer may contact the taxpayer to confirm the items in dispute.

(2) The following conditions must be present before the hearing officer considers a new issue:

  1. the new issue was voluntarily identified by the taxpayer while the protest was under consideration by Appeals.

  2. the information was unavailable to Collection at the time of rejection (e.g., the taxpayer did not share it and it was not readily retrievable from internal sources or it did not exist).

  3. if the information was available to Collection, the information was shared with the taxpayer (e.g., discussed or included on the IET/AET).

  4. the information does not require further development.

(3) Information that was available to Collection includes not only information in the case file, but information that was available internally such as filed tax returns or income, asset and related information available on IDRS.

(4) Although only the disputed issues will be initially reviewed and considered by the hearing officer, the taxpayer may present new issues during the appeal. If the taxpayer discloses new issues during the hearing, review this section for instructions on when to consider a new issue.

(5) The hearing officer will not request information to document or raise new issues or to otherwise verify issues that are not in dispute. It is also not appropriate to request such information and refer it to Collection for development via an ARI.

Request and Review of Supplemental Information - Collection Issue Offers

(1) This section provides guidance pertaining to the request and review of supplemental information sought or received by the hearing officer. The hearing officer may request supplemental information, if needed, for an issue under appeal.

(2) The hearing officer’s requests for supplemental information are subject to the following:

  1. The supplemental information being sought pertains to a specific issue that is in dispute between the taxpayer and Collection, or

  2. The supplemental information pertains to an issue that was raised by the taxpayer after the appeal was made, and

  3. The hearing officer’s finding cannot raise the value of income or an asset to an amount that is higher than what was determined by Collection, unless the taxpayer provided such information to Appeals. Therefore, the matter should not be pursued by the hearing officer if the finding would increase the value of income or an asset or reduce an expense item that is not in dispute.

  4. Note: See IRM 8.23.3.3 and IRM 8.23.4.3 for exceptions.

(3) The hearing officer may request supplemental information when it is necessary to clarify an item in dispute. Clarifications should be for matters that are generally clear based upon the information already in the case file, but may need additional support in order to resolve or more fully support the taxpayer’s claim. Supplemental information is that which should provide sufficient clarification of an issue based upon a simple face value consideration of its contents. Supplemental information will not be requested to better establish the Government’s position. Two examples of acceptable supplemental information requests are as follows:

Example: (1) The taxpayer is a wage-earner and raises a new issue by claiming that there has been a loss of income due to a recent increase to the taxpayer's employer-provided health insurance plan and an increase to the taxpayer’s state income tax withholding. The hearing officer requests a copy of the taxpayer's pay stub and a completed tax calculation worksheet. The hearing officer reviews the information and finds it supports the taxpayer’s position enabling the hearing officer to make a decision in the case.

Example: (2)The taxpayer, a self-employed insurance salesperson, protests his allowable health care expenses stating his monthly premiums have increased. The taxpayer provides copies of his policy and monthly payment with the appeal. Collection disallowed the increase in the premium stating the policy is excessive. The hearing officer issues the conference letter and requests clarifying information. At the conference the taxpayer provides testimony that he has that particular policy because it covers his spouse’s chronic illness. The hearing officer determines his testimony is credible and that there is sufficient information to make a decision.

(4) The hearing officer will not request supplemental information if it does not fall within the parameters of paragraph (2) above and the allowable exception in paragraph (3).

Determining When to Send an Appeals Referral Investigation (ARI)

(1) The procedures for issuing an ARI are found in IRM 8.23.3.3.1.4. This section explains circumstances when an ARI would or would not be sent. Since it is not possible to provide guidance on every scenario encountered, judgment should be used that aligns with Appeals’ policy that Appeals is not the first finder of fact.

(2) If the information under consideration can be easily reviewed and its content determined at face value, do not forward the information to a COIC or Field OIC group using an ARI. If the conclusions drawn from the information and testimony are obvious to the hearing officer, an ARI is not necessary. However, if investigation or further development of the issue is needed, the hearing officer must use an ARI.

Note: Many items such as household bills, pay stubs, bank statements, retirement account statements, etc.,

can be reviewed by the hearing officer without investigation. However, information involving more than a face value evaluation such as a business appraisal, profit and loss or financial statements, stock valuations, etc., should be reviewed by a COIC or Field OIC group in response to an ARI. In unusual circumstances, another option may be a referral for analysis by an Appeals Valuation Engineer.

(3) Some examples of when an ARI would be appropriate are:

Example: (1) A self-employed taxpayer’s income is at issue in the appeal and the taxpayer provides new bank statements to show a drop in income. One of the new bank statements shows a transfer from an undisclosed bank account. The taxpayer states the transferred funds are not income. This is new information the taxpayer provided to Appeals for an issue in dispute and must be referred to Collection for investigation using an ARI.

Example: (2) An in-business taxpayer submitted an OIC and a profit and loss statement for the period of January through June of the current year. That statement was used by Collection to determine the taxpayer’s ability to pay. With the case in Appeals, the taxpayer’s income at issue and the current tax year closed, the taxpayer submits a new profit and loss statement reflecting a significant decrease in income and increases to certain expenses. An ARI must be used for this new information since it requires more than a face value review and will need further verification of income and expense items.

Example: (3) After the rejection of the offer, the taxpayer hires a new representative and provides a revised financial statement and supporting documents to the hearing officer. An ARI must be used to forward this information to Collection for initial review and verification. The hearing officer should include a copy of the initial financial statement with the referral of the new information.

Example: (4) After rejection of the offer, the taxpayer provides a new, formal appraisal of his business as an ongoing concern and asks the hearing officer to significantly reduce the RCP based upon its findings. Due to the complexity of the issue, an ARI must be used.

Note: Any certified professional appraisal provided by the taxpayer should be forwarded to Collection for initial analysis.

(4) Examples of when an ARI would not be appropriate are:

Example: (1) The taxpayer has two residential real estate properties listed on Form 433-A, Collection Information Statement. No rental income is present on the financial statement and rental income is not a disputed issue in the appeal. This issue would not be reviewed by the hearing officer and an ARI would not be appropriate because Collection had the opportunity to develop this aspect of the case but did not do so.

Example: (2) Bank statements found in the case file show transfers to another account that is not listed on the AET and was not otherwise addressed by Collection. An ARI would not be sent to Collection because they had the opportunity to develop the issue but did not do so. The hearing officer will not raise the issue or send it back to Collection to develop via an ARI.

Example: (3) The hearing officer reviewing a rejected offer sees comments by Collection that suggest a nominee/transferee or alter-ego situation may be present and there are several documents in the case file from which the comments were derived. These concerns were not raised in the protest, the issue was not developed by Collection and the assets do not appear on the AET. An ARI would not be sent.

Example: (4) After the rejection of his offer, a taxpayer dissipated a bank account holding $20,000, reportedly using the money to pay medical bills and necessary living expenses. The hearing officer may ask the taxpayer to provide information to substantiate the claim. The hearing officer determines the face value of the information provided supports the taxpayer’s claim and makes a decision based on that review. An ARI is not required in this instance. However, if the hearing officer determines the information provided needs more development or investigation, an ARI could be utilized.

(5) A taxpayer appealing Compliance's rejection of their offer has had an opportunity to present to Collection the issues and financial information or documentation relevant to the acceptance of the offer. Therefore, the hearing officer should not routinely grant deadline extensions. A deadline extension should only be granted if the hearing officer believes an extension may ultimately lead to a settlement and is appropriate given the individual facts and circumstances of the case. The reason for granting the extension should be documented in the case activity record.

(6) If the supplemental information request is made prior to the conference, the hearing officer should allow a sufficient amount of time between the date by which the taxpayer is to provide the information and the conference date to ensure sufficient time to review the information before the conference. If the supplemental information request is made at or after the conference and the taxpayer does not provide complete information for all of the requested items by the established due date, the case may be closed by sustaining Collection's rejection of the offer. Document the case activity record as to exactly what was received and when it was received. Follow the closing procedures in IRM 8.23.4, Acceptance, Rejection, Withdrawal and Default Procedures for Non-Collection Due Process (CDP) Offers.

Requesting an Appeals Referral Investigation (ARI)

(1) Situations may arise during the consideration of a rejected offer where the hearing officer will request review of new information by a COIC or Field OIC group. In these situations, the hearing officer should use Form 2209, Courtesy Investigation, to request an Appeals Referral Investigation (ARI). The ARI should be sent as follows:

  • If the OIC case was rejected by a Field OIC group, send the ARI to the originating office. The name of the Collection manager will be on the rejection letter or Form 1271 that should be located in the case file.

  • If the OIC case was rejected by COIC, send the ARI to the originating office via secure e-mail to *SBSE COIC Memphis or *SBSE COIC Brookhaven. If the hearing officer is unable to scan and send a secure e-mail with the ARI, the hearing officer should send it to the originating office via E-fax to Memphis COIC at 1-855-800-5520 or Brookhaven COIC at 1-855-383-8818. Subject lines should include “ARI”.

  • E-fax, secure e-mail or regular mail may be used to transmit referrals. If regular mail is used, the hearing officer should include a Form 3210 transmittal. If E-fax is used, a copy of the “received” transmittal should be retained in the case file.

(2) These ARI requests should be limited to situations where the hearing officer needs the assistance of COIC or a Field OIC group to perform certain financial verification actions. See IRM 8.23.3.3.1.3 for examples and guidance in these situations.

(3) Apply feature code "RI" Referral Investigation and suspend the case in ACDS using CARATS code SU/PI until the ARI is completed. Update the status to E/OTH.

(4) Once the ARI is returned, take the case out of suspense using CARATS code SU/TO. The RI feature code will remain on the case after it has been taken out of suspense.

(5) When issuing the ARI request, the hearing officer should send a letter to the taxpayer advising them of the referral. Consider using Letter 5208 for this purpose. State in the letter what Collection was asked to do and inform the taxpayer that the results will be shared with them and that the taxpayer will be given an opportunity to respond to the results.

(6) Per IRM 5.1.8.5, Collection considers an ARI to be a “Mandatory Assignment.” The completion period for an ARI is:

  • 45 days after issuance if the action address is within the United States, Puerto Rico or the Virgin Islands

  • Six months after issuance if the action address is any other U.S. possession or territory or located within a foreign country

Note: Additional time to complete an ARI may be granted, if agreed between Appeals and Collection.

(7) When investigation results are received from Collection, promptly send a copy of the results to the taxpayer attached to a letter stating Collection has concluded its investigation. Give the taxpayer 14 calendar days (more if appropriate under the circumstances) to review the information and provide feedback, if any, that Appeals should consider.

(8) The case will be decided by the hearing officer based upon the available information, including the uninvestigated items provided by the taxpayer, in the following circumstances:

  • The taxpayer does not cooperate with Collection or otherwise fully respond to any request(s) for additional information.

  • The COIC or Field OIC Group in receipt of the ARI does not respond timely. This does not include a request for additional time to complete the ARI, to which Appeals agrees.

  • The taxpayer does not respond to the hearing officer’s correspondence in (7) above.

(9) Appeals retains full jurisdiction of the open OIC while Collection is investigating the ARI, so it is Appeals' responsibility to follow up if the above time frames are not met. Because of ex parte communication issues, limit the extent of the discussion to only the general time frame of the ARIs completion. See IRM 8.1.10, Ex Parte Communications. Carefully document the case activity record:

  • why the COIC or Field OIC employee was contacted

  • what question(s) was asked and the answer(s) received

(10) Per Revenue Procedure 2012-18, OIC cases are subject to ex parte communication rules. The third-party contact waiver provision found in Section 7 of Form 656 pertains to non-IRS contacts only.

Coordination with Other Functions

(1) The hearing officer must be alert to issues that may prevent making a final determination on an appealed offer rejection and when such issues arose in relation to when the offer was either rejected by Compliance or when the preliminary determination was communicated to the taxpayer by the Compliance offer investigator. Issues arising after Compliance rejected the offer, such as bankruptcy, litigation, or an open criminal investigation, will require coordination with other functions before proceeding with consideration of the appealed offer rejection. See IRM 8.23.2.4 for premature referral criteria and procedures if such events occurred before the preliminary determination letter was issued to the taxpayer by the Compliance offer examiner.

Caution: For ex parte communication purposes, carefully review Appeals' IRM guidance before any contact with another function. Be sure to document the case activity record with the purpose of the contact, what was discussed, and the information that was received. Guidance on ex parte communication issues can be found in Rev. Proc. 2012-18 and IRM 8.1.10, Ex Parte Communications.

(2) For procedures concerning an open Examination matter, follow IRM 5.8.4.17.

(3) For procedures concerning an open criminal investigation, follow IRM 5.8.4.19. The hearing officer must exercise caution and good judgment before contacting someone from Criminal Investigation (CI). The hearing officer should discuss the issue with their ATM and, if needed, IRS Counsel, before initiating contact with CI.

(4) The IRS may not have authority to compromise a case that has been referred to the Department of Justice (DOJ). A TC 520 with closing codes 60-89 indicates that the taxpayer is involved in a bankruptcy or litigation. IRS Counsel and Advisory, Insolvency & Quality (AIQ), should be contacted to determine the nature of the litigation and whether settlement authority belongs solely to DOJ. If any liabilities in the OIC are under DOJ’s jurisdiction, acceptance of the offer must be coordinated with DOJ.

Financial Analysis and RCP Determination

(1) The hearing officer will review the written appeal for the specific issues that are in dispute. If no specific issues are listed in the appeal, then the specific items of disagreement present on the IET/AET completed by Collection will be used to identify the issues. If necessary, the hearing officer may contact the taxpayer to confirm the items in dispute. Only the disputed issues will be initially reviewed and considered by the hearing officer. However, the taxpayer may present new issues during the appeal.

Exception: The hearing officer will use the most current or updated national and local standard allowances unless the case has already been submitted by the Appeals hearing officer to the ATM for final review or approval or to Counsel for final review.

(2) Consult IRM 5.8.5, which contains details on the information needing verification. If an issue is inadequately developed, the hearing officer will not develop the issue but will consider the evidence provided by the taxpayer versus the reasons for Collection’s non-acceptance and make a determination based on those factors. Unless it is at the taxpayer's request or an issue in dispute, the hearing officer will not review information that was located in the case file, was available to Collection at the time of rejection, or provided by the taxpayer with the request for appeal, and was not developed by Collection, shared with the taxpayer and included on the IET or AET. See IRM 8.23.3.3 for certain exceptions.

(3) Occasionally, new or more complex information may be submitted by the taxpayer that requires the assistance of a COIC or Field OIC group. See IRM 8.23.3.3.1.2 and IRM 8.23.3.3.1.3, in such circumstances.

(4) The numerical factors used to determine the present value of the taxpayer's future ability may occasionally change. Fewer months of future income are generally required from taxpayers who agree to shorter payment terms. The table inIRM 5.8.5.25 reflects the present value factors to be used when determining the present value of the taxpayer's future ability to pay.

(5) A frequent issue on appeal is the amount of income to use when determining future ability to pay when a taxpayer has a sporadic employment history or fluctuating income. In these instances, IRM 5.8.5.20 says the taxpayer's income may be averaged over the three prior years. Use by Appeals of a period of time other than three years or the amount of time used by Compliance should be the exception and done only when specific circumstances are present. However, the hearing officer may see this issue differently than how it was seen by Collection, so the rationale for using the non-standard or different time period must be documented in the case activity record and in the ACM.

(6) The hearing officer will not secure a consumer credit report when recommending an offer for acceptance. However, any credit reports that are in the case file must be disposed of upon closure of the OIC, regardless of case disposition (acceptance, rejection or withdrawal). Refer to IRM 8.23.4.2.1 for procedures.

Note: The Fair and Accurate Credit Transactions Act of 2003 requires that persons who dispose of credit information take reasonable measures to protect against unauthorized access to or use of credit information in connection with its disposal. See IRM 8.23.4.2.1 for information on removing and destroying credit report information as part of closing out an OIC case in Appeals. These procedures are in IRM 8.23.4.2.1, Accepted Offer Closing Documents and Appeals Hearing Officer Procedures, but also apply to all OIC case disposition types.

(7) If it becomes apparent that Appeals must sustain Collection's rejection of the offer, the hearing officer will contact the taxpayer and advise them of the decision and the reason(s) why the offer cannot be accepted. Provide a copy of the financial analysis reflecting Appeals' determination of RCP (generally copies of the IET and AET), allow the taxpayer a reasonable opportunity to provide feedback or amend the offer to the revised RCP amount and then follow the instructions in the following table:

If ...

Then ...

The taxpayer provides feedback causing a substantive change to the previous RCP determination, but the revised RCP is still greater than the taxpayer's offer and less than the amount owed

Contact the taxpayer and allow them 14 calendar days to amend the offer to the revised RCP amount. See IRM 8.23.3.4 for details on amended offers and IRM 5.8.4.25 for possible TIPRA payment requirements.

Note: Appeals has had CDP cases remanded by the Tax Court for abuse of discretion citing IRM 5.8.4.9 for not allowing the taxpayer an opportunity to amend the offer to the final RCP amount.

The taxpayer provides feedback that causes no appreciable change to the RCP determination or is unwilling/unable to amend the offer to the necessary amount, if applicable

Contact the taxpayer, explain any legal or administrative remedies and advise that Appeals must sustain rejection of the offer. Review the procedures in paragraph (8) of this section before proceeding with closing out the case

The taxpayer contacts Appeals and indicates an inability to amend the offer to the necessary amount, or amending the offer doesn't apply because RCP exceeds the liability and there is no basis for ETA consideration

Advise the taxpayer that Appeals must sustain rejection of the offer. Review the procedures in paragraph (8) of this section before proceeding with closing out the case

The taxpayer doesn't respond

Proceed with closing out the case by sustaining rejection of the offer

Note: Providing the taxpayer with a copy of Appeals’ financial analysis is not necessary if there are no substantive changes to the analysis that was completed by Collection. The taxpayer has already had an opportunity to provide relevant feedback to Collection's RCP analysis.

(8) If an offer cannot be accepted, the hearing officer must communicate the reason(s) why and discuss alternatives (such as installment agreements and Currently Not Collectible status, as applicable) that the taxpayer may pursue with Collection. Do not refer the taxpayer to COIC or Field OIC groups. Close the offer and refer the taxpayer to Form 9465, Installment Agreement Request, and/or IRS Telephone Assistance at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses). The Form 9465 contains information on user fees for the different methods of making payments under an installment agreement.

(9) NFTL filing determinations are not to be made by Appeals employees.

Net Realizable Equity

(1) For offer purposes, assets are valued at the net realizable equity (NRE). NRE is generally defined as quick sale value (QSV) less amounts owed to secured lien holders with priority over the federal tax lien, if applicable, and levy exemption amounts. See IRM 5.17.2.

(2) QSV is defined as an estimate of the price a seller could get for the asset in a situation where financial pressures motivate the owner to sell in a short period of time, usually 90 calendar days or less. Generally, QSV is an amount less than fair market value (FMV). For purposes of determining the taxpayer’s RCP, information provided by the government and the taxpayer should be used to arrive at appropriate FMV determinations.

(3) As stated earlier in this IRM, the hearing officer should research IRM 5.8 and all related interim guidance to evaluate Collection actions, decisions and valuation methods for OICs. IRM 5.8 and all related interim guidance should be used as a reference for valuation methods in OIC cases.

(4) For the consideration of an OIC by Collection, Collection should verify the information contained on the financial statement, and identify any assets belonging to the taxpayer that may not have been disclosed. Collection should also properly value assets that were either disclosed by the taxpayer or discovered during the offer investigation.

(5) The Appeals hearing officer will only consider assets documented previously by Collection in the AET. Appeals will not identify and value any additional assets. Appeals will only consider Items in dispute where the Taxpayer and Collection did not reach an agreement.

(6) The Appeals hearing officer will not revise the value of an asset to an amount higher than the value previously determined by Collection, unless the taxpayer provided such information to Appeals.

Future Income Valuation

(1) Future income is defined as an estimate of the taxpayer’s ability to pay based on an analysis of gross income, less necessary living expenses, for a specific number of months into the future. Complete guidance on future income and the calculation of future income are in IRM 5.8.5.20 and IRM 5.8.5.25.

(2) When calculating the value of future income, determine if the taxpayer can full pay the liability through installment agreement guidelines. This calculation will initially be based on the taxpayer's documentation and include application of the expense standards and allowances. It is appropriate to ensure accruals are taken into consideration when considering whether or not the liability can be paid in full. Absent special circumstances, an OIC will not be accepted if it is believed that the liability can be paid in full as a lump sum, by installment payments extending through the remaining statutory period for collection, or other means of collection. See IRM 5.8.1.1.3. See also (3) below.

(3) Notwithstanding the directives of IRM 5.8.1.1.3, and paragraph (2) above, in an OIC case, future income is an asset and its value can be adjusted for numerous reasons. This means that, under certain circumstances, future income may be determined to be higher or lower than what is found by initial analysis. Therefore, adjustments to future income calculation can be made even though initial analysis determines, with mathematical certainty, that the taxpayer could full-pay the liability through an installment agreement.

(4) While other reasons for adjustments to future income valuation may apply, the chart below provides IRM references for some of the most common reasons for adjustments to future income that are encountered and for the calculation of future income:

Issue Related to Future Income

IRM Section(s)

Bankruptcy (Proposed Filing)

IRM 5.8.5.20, IRM 5.8.10,IRM 8.23.3.3.2.3

Expenses (Projected Future Increase or Decrease)

IRM 5.8.5.22, IRM 5.8.5.22.1, IRM 5.8.5.22.2, IRM 5.8.5.22.3, IRM 5.8.5.22.4, IRM 5.8.5.23, IRM 5.8.5.24

Future Income (Calculation of)

IRM 5.8.4.3.1, IRM 5.8.5.25

Future Income (Calculation of) - Taxpayer Located Outside of the United States

IRM 5.8.5.25.1

Income Averaging (for situations of taxpayer underemployment, temporary employment, unemployment, fluctuating annual income, etc.)

IRM 5.8.5.20

Payment Terms (Offer Payment Terms)

IRM 5.8.4.3.1, IRM 5.8.5.28

Retirement (Proposed)

IRM 5.8.5.20

Health Concerns

IRM 5.8.5.20

Bankruptcy Considerations

(1) The IRS will not consider an offer while a taxpayer is in bankruptcy. When a taxpayer files bankruptcy, the Bankruptcy Code provides legal remedies and procedures to resolve the government's claim. If the taxpayer files bankruptcy while the OIC is being considered in Appeals, the hearing officer must close the case by sustaining Collection's rejection of the offer. In this instance, the offer has already been rejected (by Compliance) and Appeals no longer has a basis to overturn that decision. Follow the procedures in IRM 8.23.4 for closing the offer.

(2) Should the taxpayer state an intent to file bankruptcy if Appeals does not accept the offer, the hearing officer should consider whether any of the tax liabilities can be discharged and refer to the guidance in IRM 5.8.5 and IRM 5.8.10. Considering if the taxpayer were to file bankruptcy, the hearing officer should make a general analysis of collectibility and the liabilities that would be discharged. The hearing officer should attempt to negotiate an agreeable settlement, as appropriate. Based upon the hearing officer’s findings, a hazards approach should be used based upon the degree of risk determined to exist that the taxpayer would file bankruptcy. An ARI may be needed to have the bankruptcy analysis considered by Collection first. See IRM 8.23.3.3.1.4 for ARI procedures. For bankruptcy considerations, some general determinations the hearing officer should make are:

  1. which liabilities are dischargeable

  2. whether the taxpayer has dischargeable non-tax debts

  3. whether the taxpayer has any prior history of bankruptcy filing

  4. the overall age of the liabilities

  5. the success of the Service's prior collection efforts against the taxpayer

  6. any assets that would be excluded from a bankruptcy estate and encumbered by the statutory lien

  7. whether the taxpayer qualifies for a Chapter 7 discharge based upon the "means test"

  8. whether there are any NFTLs already filed on assets that would be exempted from a bankruptcy estate

Note: Procedures involving ex parte communications must be followed when discussing case information with Insolvency Unit employees. The hearing officer should clearly document the case activity record concerning exactly what information was requested from Insolvency, why such information was requested, and the results of the contact. See IRM 8.1.10, Ex Parte Communications, for additional guidance.

(3) The value of future income is an asset that may be lowered based upon the perceived degree of risk of the taxpayer filing a Chapter 7 bankruptcy. See IRM 5.8.5.20, IRM 5.8.10 and IRM 8.23.3.3.2.2.

(4) Unless special circumstances exist, under no circumstances will the Service accept less than would be collectible in the event of a Chapter 7 bankruptcy, including the amount recoverable in bankruptcy plus the amounts recoverable based on excluded property subject to a statutory lien or exempted property subject to a NFTL. A successful compromise would generally secure more than the adjusted RCP, because if the taxpayer only offers what would be collectible in the event of bankruptcy, there may be little or no benefit to the government by acceptance of the offer.

(5) The basis for acceptance of an offer will be Doubt as to Collectibility, where the RCP is adjusted based on consideration of the amount recoverable in bankruptcy. If special circumstances are present which suggest that an amount less than the bankruptcy adjusted RCP should be accepted, then the offer should be accepted under either Effective Tax Administration (ETA), or Doubt as to Collectibility with special circumstances.

(6) If the taxpayer files bankruptcy after the offer is accepted, follow the procedures in IRM 5.8.10, Offer in Compromise Special Case Processing. In accordance with the Bankruptcy Code, the offer should not be defaulted or payments solicited while the taxpayer is in bankruptcy.

(7) See IRM 8.7.6.3, Appeals Bankruptcy Cases, Offer in Compromise Cases, for additional information on bankruptcy issues.

Dissipated Assets

(1) Dissipation of assets can be a frequent issue of dispute in an appealed offer rejection. If a determination is made that a taxpayer dissipated an asset(s) and such asset is no longer available to pay the tax liability, a secondary determination must be made as to whether or not to include the value of the dissipated asset as part of the RCP.

(2) Including the value of the dissipated asset as part of the RCP determination is not automatic. Such inclusion must be clearly justified in the case file and documented in the case activity record. If the taxpayer can show that all or a portion of the asset was used to provide for necessary living expenses, such portion of the asset should not be included in the RCP calculation. The taxpayer must be able to provide a reasonable accounting of the dissipated asset.

Note: Where more complex asset dissipation issues are encountered, it may be necessary for the hearing officer to request an ARI and present the taxpayer’s documentation to a COIC or Field OIC group for initial analysis.

(3) If the investigation clearly reveals that the asset was dissipated with a disregard of the outstanding tax debt, the value of the asset should generally be considered for inclusion in the RCP calculation. As indicated, however, an exception may be appropriate for the amount that the taxpayer can establish was used to fund necessary living expenses.

Caution: Avoid "double counting" of a dissipated asset in the RCP. For example, if a portion or all of a dissipated asset was used to purchase or improve the value of another asset, do not include both the full value of the dissipated asset in the RCP and the full value of the other asset that was purchased with, or increased in value by, funds from the dissipated asset.

(4) If the hearing officer reduces or eliminates the value of a dissipated asset included by Collection as part of the RCP, the reason for such should be documented in the case activity record and in the ACM.

(5) IRM 5.8.5.18 contains the primary guidance for dissipated asset issues, including numerous examples.

Additional Review of Real Property Valuations in Certain Cases

(1) On January 6, 2009, the Commissioner issued News Release IR-2009-2 to outline ways in which the IRS would assist taxpayers experiencing financial hardship. One of the steps outlined was providing an additional review of real property valuations to determine whether accepting an offer in compromise is appropriate.

(2) A cadre of Appeals hearing officers provides the additional review of real property valuations for Appeals. A review assignment is based upon the location of the property. See the cadre list on the Appeals OIC Web Page.

Note: Because most CDP offers have open TIPRA statutes, the hearing officer must be aware of the statute expiration date in cases where additional review of real property values is likely. Referrals to the cadre should be made with no less than 150 days remaining before the 24-month TIPRA period expires. See IRM 8.23.2.3 for information on TIPRA statute issues and when the OIC case must generally be presented to Appeals Account and Processing Support (APS) for closing.

(3) The hearing officer and/or the ATM must have a discussion with the taxpayer or representative concerning the disputed valuation. The case must meet all of the following requirements before it is referred for the required additional review:

  1. The taxpayer owes Individual Master File (IMF) taxes (MFT 20, 30, 31 or 55),

  2. Offer negotiations are otherwise complete, all case issues are fully developed and the difference between the amount offered by the taxpayer and the RCP determined by the hearing officer is solely attributable to a dispute over the amount of net realizable equity in real property, and

  3. There are no other issues that would independently justify rejection of the offer, such as a taxpayer's failure to provide information necessary to properly evaluate the merits of the offer.

(4) If a case meets the above requirements, the hearing officer must follow these procedures:

  1. Prepare a brief memorandum confirming the case meets the criteria in paragraph (3) above and include a discussion, in sufficient detail, of the documentation and valuation information used to determine the value of the real property, including all information provided by the taxpayer. Include details about any defects in the property’s condition that may impact its value. Include in the memorandum a statement of whether there is an open TIPRA statute, and if so, provide the TIPRA statute expiration date.

    Note: To make a referral, there must be at least 150 days remaining before the expiration of the TIPRA statute. If there are less than 150 days, the hearing officer’s ATM must approve the potential delay in submitting the case to APS within the 90-day requirement in IRM 8.23.2.3.

  2. Type in Loc Code ‘RV’ in the Loc 10 field.

  3. Submit the referral package to the hearing officer’s ATM for review and approval.

(5) Upon receipt of the additional review referral package, the hearing officer’s ATM will:

  1. Review the referral package for completeness and approval.

  2. Confirm at least 150 days remain on the 24-month TIPRA period (see below for instructions in cases with less than 150 days).

  3. Access the Appeals additional reviewer cadre and ATM listing by clicking the 'Additional Real Property Value Review' link in the Resources section on the Appeals OIC Web Page. Determine the likely Appeals additional reviewer and ATM based on the location of the property.

  4. Because of the short turnaround time for the review, it is important to confirm that the selected reviewer is available. Contact the reviewer's manager and advise them a referral for additional review is ready for submission. If the selected reviewer is not available, choose a different reviewer from the cadre listing and similarly contact that reviewer's manager to confirm availability.

  5. Once an available reviewer is selected, send the referral package by fax, eFax or secure e-mail to the reviewer's manager for Team Member Case (TM) assignment.

(6) If less than 150 days remain before the 24-month TIPRA period expires, the hearing officer’s ATM will contact the reviewer’s ATM to advise of the pending referral and make any arrangements for expedited review. This may require reassignment to a reviewer who generally covers referrals of properties located in other areas.

(7) Upon receipt of the additional review referral package, the ATM of the reviewer will assign the additional review case to the reviewer.

(8) The procedures and responsibilities of the additional reviewer are as follows:

  1. Review the referral package to make sure the referral meets the criteria for additional review detailed in paragraph (3), above, and note the TIPRA statute date listed in the referring memorandum.

  2. Submit a request to APS to create a separate Team Member record for the OIC WUNO and input the appropriate ‘TL’ and ‘TM’ feature codes.

  3. Complete the additional property value review within 15 days of Team Member assignment by reviewing the available information and determining the appropriate value of the real property.

  4. Per IRM 8.7.11.3.1, the reviewer will prepare a brief ACM in support of the determination of the property value issue as a Team Member on the OIC case.

  5. In the Loc 10 field, input the number of hours on the ACDS Team Member record, and the month and year in which the TM case was closed. Loc Code ‘RV’ was previously input in the Loc 10 field, so after the reviewer inputs the hours and month/year closed, the Loc 10 field should look like this: RV–1.00hrs–11/09.

  6. Close out the TM WUNO using Closing Code 45 and submit the completed additional review package and brief ACM to the reviewer’s ATM.

(9) Upon receipt of the completed additional review package, the ATM of the reviewer will review and approve the Report and Team Member case and fax, eFax or e-mail the valuation report/ACM to the ATM of the hearing officer assigned to the OIC case.

(10) Upon receipt of the returned additional real property value report/ACM, the hearing officer will incorporate the additional reviewer’s determination into the overall RCP calculation as follows:

If...

Then...

The final real property valuation results in the RCP exceeding the balance due

Follow procedures in IRM 8.23.3.3.2 for non-CDP offers and IRM 8.22 for CDP offers.

The final real property valuation results in the RCP amount consistent with the taxpayer's offer amount

Follow procedures in IRM 8.23.4 for acceptance processing.

The final real property valuation results in a RCP that exceeds the taxpayer’s offer but is less than the balance due

Provide the taxpayer an opportunity to amend the offer. See IRM 8.23.3.4 for non-CDP offers and IRM 8.22 for CDP offers.

Amended Offers

(1) In a non-CDP OIC, the hearing officer will review the taxpayer’s written appeal for the specific items that are in dispute. The specific disputed items present on the IET/AET completed by Collection or the taxpayer’s written request for appeal will be used to identify the disputed items.

(2) If new information requiring further development is provided during consideration of an offer, the hearing officer will issue an ARI to Collection via Form 2209, Courtesy Investigation, to consider the new information. Collection’s response to the ARI will be shared with the taxpayer.

(3) If Collection’s response to an ARI includes a comment that the offer should be accepted, the hearing officer will adopt the recommendation. If Collection’s response is not to accept or no recommendation is made, the hearing officer will review the information that was provided by both the government and the taxpayer and determine whether or not to accept the offer. See IRM 8.23.3.3.1.3 for examples when an ARI may be needed.

Note: If Collection’s acceptance recommendation is legally or procedurally incorrect, document the CAR with Collection’s recommendation and the basis for the error including any applicable IRM citations and make an independent determination on the acceptability of the offer.

Example: A taxpayer’s doubt as to collectibility offer is rejected based on the taxpayer’s ability to full pay the liability. In Appeals, the taxpayer amends the offer to submit it under ETA based on public policy. The hearing officer issues an ARI to the non-economic hardship OIC group for consideration and receives a response recommending acceptance of the offer. The offer specialist’s report states that the acceptance recommendation is due to errors in the audit report and corrections to those errors. The hearing officer reviews this report and determines the recommended acceptance is based on doubt as to liability (DATL) grounds. The hearing officer sustains the rejection of the existing offer and advises the taxpayer to submit an offer under DATL through normal channels to pursue that remedy.

(4) In the interests of good tax administration, when rejection of an offer is sustained but the taxpayer is a possible candidate for consideration of acceptance under another basis, the hearing officer will assist the taxpayer by explaining further options as outlined in IRM 8.23.3.4.1, Amended Offers - Change in Offer Basis or Other Circumstances.

Amended Offers - Change in Offer Basis or Other Circumstances

(1) Appeals will generally consider an amended basis of acceptance but not in all circumstances. The table and examples below provide illustration:

If the Original Offer was Considered Under

Then it also may Generally be Considered Under

DATC, DCSC or ETA Hardship

DATC, DCSC, ETA Hardship, ETA Public Policy

Doubt as to Liability (DATL)

DATL

ETA Public Policy

DATC, DCSC, ETA Hardship, ETA Public Policy

(2) Examples of amended offers are as follows:

Example: (1) The taxpayer submitted an offer under DATC and the offer was rejected by Collection. During the appeal, it is determined that the acceptable amount of the offer is higher and the taxpayer agrees to pay the new offer amount and/or new payment terms. The hearing officer will secure a Form 14640 addendum or amended offer form to reflect the new offer amount, the applicable TIPRA payment and process the acceptance. An ARI is not necessary.

Example: (2) In example 1 (above), if new information is submitted by the taxpayer that requires investigation, the hearing officer will use an ARI to send the new information to Collection for verification. The hearing officer will share and discuss Collection’s response with the taxpayer, and make a determination based upon the information that was provided.

Example: (3) A DATC offer is considered and rejected by Collection. In Appeals, the taxpayer introduces information requiring further development to consider the same offer under DCSC or ETA. Upon securing the new information from the taxpayer, the hearing officer will use an ARI to send the new information to Collection for development of the issue. The hearing officer will share Collection’s response with the taxpayer and make a determination based upon the information that was provided.

Example: (4) A DCSC offer is considered and rejected by Collection. During the appeal process the taxpayer is unable to prevail using the special circumstances. The taxpayer raises a counter argument they can pay the RCP amount – which was fully documented and verified in the case file from Collection. The hearing officer can accept the offer based upon DATC without an ARI. However, if new information requiring further development is presented for consideration, an ARI is necessary for Collection to comment on the new information. The hearing officer will share Collection’s response with the taxpayer and make a determination based upon the information that was provided.

Example: (5) An ETA Hardship offer is considered and rejected by Collection. During the appeal, the taxpayer is unable to prevail under ETA provisions but because of a decrease in the RCP or an increase in the amount of the liability, the taxpayer may request consideration under DATC or DCSC. If the issues are fully documented and developed by Collection, the hearing officer can accept the offer under those provisions without an ARI. However, if new information requiring further development is presented for consideration, an ARI will be necessary. The hearing officer will share Collection’s response with the taxpayer and make a determination based upon the information provided.

Example: (6) A DATL offer is considered and rejected by Compliance. In Appeals, the taxpayer attempts to introduce new issues for consideration of the same offer under any other acceptance basis. The original offer must be resolved and the taxpayer may submit a new offer to Collection under the new basis of compromise. Consult IRM 5.8.1.9.2.

Note: The same rule in Example 6 applies if a DATC or ETA offer is considered and rejected by Collection, but the taxpayer wishes to introduce a DATL offer in Appeals. The original offer must be resolved and the taxpayer may submit a new offer to Compliance under the new basis of compromise.

Example: (7) An ETA Public Policy offer is considered and rejected by Collection. Under ETA Public Policy, all other bases of compromise must have been considered and, where applicable, fully developed prior to rejection. Therefore, any developed bases of rejection are subject to consideration by the hearing officer.

Example: (8) An offer is considered and rejected by Collection under any basis other than DATL and, in Appeals, the taxpayer raises issues involving ETA Public Policy , an ARI should be sent to Collection’s ETA team in Austin, TX, for initial analysis of the ETA offer. See IRM 5.8.11

(3) Because a taxpayer may propose not just the amount of the offer, but also the terms of the payment, consideration must be given to such terms before deciding to recommend acceptance. The hearing officer must evaluate and negotiate not just an acceptable offer amount, but agreeable payment terms as well. The hearing officer is not required to accept the taxpayer's offer simply because it otherwise meets or exceeds RCP. If the taxpayer's proposed payment terms cause the offer itself to be unacceptable, the terms must be sufficiently renegotiated. If the taxpayer is not willing to propose acceptable terms, the offer may be denied as not being in the best interest of the government.

(4) In addition to amending an offer to reflect an acceptable offer amount or acceptable payment terms, an amended offer can be considered to make changes to the entity information on the offer.

Example: A jointly filed offer is considered and rejected by Collection and both parties appeal that rejection. In Appeals, it is determined that the offer is acceptable for one of the joint parties.

Amended Offers - Form 656 and Form 14640 Addendum

(1) The table below indicates when a Form 656 or Form 14640 addendum should be used to amend an offer:

If the Offer was Submitted on

And Payment Terms are for

Then Amend Using

Form 656 (March 2011)

24 months or less

The latest revision of Form 656 or Form 14640 addendum

Form 656 (March 2011)

Greater than 24 months

Form 656 (March 2011) or Form 14640 addendum

Form 656 (May 2012)

Anything available on the Form 656 (May 2012)

The latest revision of Form 656 or Form 14640 addendum

Form 656 (January 2014) or later

Anything available on the Form 656

Form 14640 addendum

(2) If amending an offer, use only the Form 14640 addendum or Form 656. Do not use any substitute forms.

(3) If the hearing officer secures an amended Form 656 or Form 14640, no IRS signature is required for the "Authorized Internal Revenue Official". For an amended Form 656, the TC 480 date for any additional periods that are added to it will be the same as the original TC 480 date, and no new signature is required for the waiver date. Use of a new signature date can be confusing and cause a second TC 480 date to be used for periods that may have been added to the offer later. In the event that the amended offer includes tax periods that were assessed after the submission of the original offer, the TC 480 date will be the assessment date.

Note: Subsection (3), above, refers to amended offers only, and not new related offers that are secured by Appeals. New related offers will have their own TC 480 and TIPRA statute periods, as well as TIPRA payment requirements. See subsection IRM 8.23.3.4.3(8), below. See also IRM 8.23.2.3(9) and (10). A related offer should be secured only when the hearing officer intends to make an acceptance recommendation.

Amended Offers - TIPRA Related Issues

(1) During the course of an offer investigation, if a TIPRA payment(s) (which includes the initial payment submitted with the offer, subsequent periodic installment payments, and/or the payment submitted with an amended offer) contributes to the full payment of a tax period, that period must remain part of the offer and must be listed on any subsequent amended Form 656 or Form 14640 addendum, and the Form 7249. Even though the tax debt is fully paid, the payment or payments used to satisfy the tax debt are still part of the overall offer amount, so all satisfied periods must remain part of the offer. See IRM 5.8.8.6. If a tax period is paid in full exclusively via a non-TIPRA payment, such as a refund offset, there is no need to secure an amended offer. See IRM 5.8.8.3, Pen and Ink Changes to Form 656.

(2) A taxpayer who does not meet the low-income certification criteria in Form 656, Section 1, may be required to remit an additional offer payment with the amended offer or Form 14640, depending on the amount and payment terms of such amended offer relative to the amount and payment terms of the original offer. Review IRM 5.8.4.23 for various amended offer scenarios and the associated TIPRA payment requirements.

(3) The taxpayer is given credit toward the amount of the amended offer for all OIC payments made prior to receipt of such amended offer. See IRM 5.8.4.23 and IRM 5.8.8.2. The OIC Acceptance Letter should indicate the total amount of offer payments received as of the date of issuance as well as the date and amount of the last offer payment received.

Caution: Cases sent to Counsel are sometimes met with delays in the review process. Update the acceptance letter after it is returned from Counsel so that it reflects the current TIPRA payments that have been made.

Example: The taxpayer originally submitted a Lump Sum Cash offer of $5,000 and submitted $1,000 with the offer. The offer was rejected and the taxpayer appealed. The taxpayer and Appeals agreed on a final periodic payment offer for $25,000. The taxpayer received credit for the $1,000 submitted with the original offer and thus owed a remaining amount of $24,000 to fully pay the offer. The offer amount listed on the amended Form 656 was $25,000 and the taxpayer proposed to make $1,200 periodic installment payments each month until the $25,000 is paid in full. The amended offer and additional TIPRA payment of $1,200 were received April 28, 2014. The OIC Acceptance Letter stated a total of $2,200 had been received and applied to the accepted offer and further advised the taxpayer that the last payment of $1,200 was received April 28, 2014.

(4) The hearing officer may process the OIC payment received with the amended offer. See IRM 8.23.1.4.1.1 for guidance on how to process OIC payments.

(5) If an amended offer is received without the required partial payment, follow IRM 5.8.4.25 by sustaining rejection of the offer if the taxpayer does not make the required TIPRA payment after being given a reasonable opportunity to do so. If an amended offer is received without the required additional TIPRA payment:

  1. Carefully review the table in IRM 5.8.4.25 to make sure an additional TIPRA payment was required with the amended offer.

  2. If an additional TIPRA payment is required, contact the taxpayer and explain the TIPRA requirement.

  3. Give the taxpayer 15 calendar days to submit the required TIPRA payment and clearly explain that Appeals must sustain rejection of the offer if such payment is not received by the established deadline.

  4. If the taxpayer does not submit the required payment, the case may be closed by sustaining rejection of the offer.

Note: Collection returns an offer as a processable return if the taxpayer does not submit the required additional TIPRA payment with the amended offer. Appeals does not "return" an offer that has already been rejected, but will apply the return criteria located in IRM 5.8.4.25, to sustain the previous rejection.

(6) If the amended offer secured by the hearing officer is a periodic payment offer from a taxpayer who is not exempt from TIPRA payment requirements (see IRM 8.23.1.4.1 for exemption criteria), the taxpayer must once again start making the proposed periodic installment payments. The hearing officer is responsible for making sure the taxpayer makes the periodic installment payments proposed in the amended offer while the OIC case is pending in Appeals. The offer may be considered withdrawn under IRC 7122(c)(1)(B)(ii) if the taxpayer fails to make all proposed periodic installment payments. See IRM 8.23.3.4.4 for Appeals mandatory withdrawal procedures.

(7) Appeals occasionally receives an appealed rejected offer in which two Forms 656 are required but only one was initially received. In this case, Collection usually will not have secured the second Form 656. Review IRM 5.8.3.5 to determine how many Forms 656 are needed. In such a case, and only if the hearing officer intends to recommend an offer for acceptance, secure the second (and/or third) Form 656 that is required, along with any applicable OIC application fee and TIPRA payment, unless the taxpayer is exempt (per Form 656, Section 1). See IRM 8.23.1.4.1 and IRM 5.8.3.5 for information on required fees and payments. Even though the additional Form 656 is related to the offer that has already been rejected, the Centralized Offer in Compromise (COIC) site must complete the processability review and process the applicable fee and payment. As part of such processing, COIC will add the related offer to their Automated Offer in Compromise (AOIC) system so that offer may be properly monitored if accepted. Because the new Form 656 generally does not represent a new offer to be investigated, COIC will provide expedited processing of the related offer within 1-2 business days of receipt. To initiate this expedited processing, the hearing officer must:

  1. Date stamp but not sign the second Form 656.

  2. Complete Form 14667, Related Offer Cover Sheet, which is available on the Appeals OIC Web Page.

  3. Prepare a Form 3210 and mail it along with the original, Form 656, the OIC application fee, TIPRA payment, and Form 14667, Related Offer Cover Sheet, to the appropriate centralized site.

    Note: This new related offer will have a new TIPRA statute, calculated from the received date of the new Form 656.

    Caution: To ensure accurate case and TIPRA statute tracking, be sure that a new WUNO is created as soon as the Form 656 is received.

(8) Section 7 of the latest revision of Form 656 allows the Service to add any assessed liabilities the taxpayer omitted or failed to list in Sections 1 and 2 of the Form. A liability that was included on the Form 656 but for which there is no longer an outstanding balance can also be removed from the Form 656, unless the period was satisfied due to a TIPRA payment. If the only revision needed before acceptance is to add or delete a missing period, neither a Form 14640 addendum nor an amended Form 656 is necessary. Contact the taxpayer to advise of additions or deletions of any missing period(s).

Caution: In earlier revisions of the Form 656, the Offer Terms may not contain a provision allowing Service personnel to delete any listed period. This means that if an earlier Form 656 lists a tax period that is paid in full and no TIPRA payment was applied to such tax period (see paragraph (2) above), an amended Form 656 must be secured.

(9) An amended Form 656 does not impact the 24-month period under IRC 7122(f) during which the Service must either reject or return the offer. If the offer was not rejected (see IRM 8.23.2.3), the date by which Appeals must either reject or return the offer remains 24 months from the date the original offer was received by the Service.

Mandatory Withdrawal Procedures for Amended Periodic Payment Offers Received by Appeals

(1) A taxpayer submitting a periodic payment offer is required to make the periodic installment payments proposed in such offer. Most taxpayers submitting a periodic payment offer will propose monthly payments, but are not required to do so under IRC 7122(c)(1)(B). The TIPRA requirement for a taxpayer to make proposed periodic installment payments while a periodic payment offer is being considered ends when Collection rejects the offer. A taxpayer is not required to continue making proposed periodic installment payments while a rejected offer is being considered by Appeals unless an amended offer is secured.

(2) If the amended offer secured by Appeals is a periodic payment offer from a taxpayer who is not exempt from TIPRA payment requirements (see IRM 8.23.1.4.1 for exemption criteria), the taxpayer must once again start making the proposed periodic installment payments. The hearing officer is responsible for making sure the taxpayer makes the periodic installment payments proposed in the amended offer while the OIC case is pending in Appeals. The offer may be considered withdrawn under IRC 7122(c)(1)(B)(ii) if the taxpayer fails to make all proposed periodic installment payments.

(3) Follow IRM 5.8.4.25 and IRM 5.8.7 procedures, including:

  • allowing the taxpayer two weeks to submit the missed payment(s),

  • affording the taxpayer an opportunity to make up only one missed proposed periodic installment payment, unless it is determined special circumstances exist, and

  • continuing with consideration of the taxpayer's appeal if it is determined special circumstances exist

(4) If the hearing officer does not receive the required proposed periodic installment payment by the established deadline and determines no special circumstances exist, the offer will be considered withdrawn under IRC 7122. Per IRM 5.8.7, the date of the withdrawal (TC 482 date) will be the date of the letter issued by Appeals indicating the offer is considered withdrawn.

Note: To be applicable, special circumstances should generally involve something out of the taxpayer's control that has caused their inability to make the payment, and not a mere oversight or financial inability to make the payment.

Collateral Agreements

(1) While these circumstances are not common, the hearing officer’s recommendation to accept an offer may include a condition that the taxpayer enter into a collateral agreement with respect to future income. This is not considered raising a new issue.

Caution: The hearing officer will not solicit or require a future income collateral agreement if the issues in dispute did not include income or expense items. The hearing officer may consider other collateral agreements in certain situations.

Example: Collection included the value of a dissipated asset in their RCP computation based on the taxpayer’s use of a retirement account. The taxpayer protests including the dissipated asset and notes that the funds were invested in a resort that was destroyed by a hurricane. The taxpayer is entitled to a capital loss of $3,000 per year. The hearing officer determines inclusion of the dissipated asset is erroneous based on IRM requirements but may consider securing a Waiver of Losses collateral agreement.

(2) Follow IRM 5.8.6 with regard to collateral agreements. In addition to the terms specifically stated in the offer, collateral agreements enable the government to either collect funds or restrict a taxpayer's ability to claim future losses or credits. Do not use them to allow the taxpayer to submit an offer for a lower amount than the RCP if the case dictates. Usage of collateral agreements should not be routine. The hearing officer should secure a collateral agreement only if significant recovery is expected or the taxpayer has identifiable future losses or credits. It may be appropriate to secure a collateral agreement when a significant increase in income is expected.

(3) Do not secure a future income collateral agreement

  • to collect future income that should be included in the offer amount itself

  • merely on unfounded speculation about an increase in future income

  • to guard against statistically improbable events, such as lottery winnings

  • to attempt collection from a potential inheritance

(4) If a future income collateral agreement is secured, the agreement can be approved by same level of approval as that of the offer. See IRM 5.8.6.2.1.1 for additional information.

Note: Future income collateral agreements must be manually monitored by MOIC for the life of the agreement. The cost of monitoring the terms and conditions of the agreement and the potential difficulty of tracing the taxpayer's income, especially if such income could be structured through other entities, must be considered before deciding to secure such an agreement.

(5) Use standard collateral agreements whenever possible to aid in the monitoring of the agreements. The standard agreements are listed below:

  1. Form 2261, Collateral Agreement-Future Income-Individual, and Form 2261-A, Collateral Agreement-Future Income-Corporation / Limited Liability Company

  2. Form 2261-B, Collateral Agreement-Adjusted Basis of Specific Assets

  3. Form 2261-C, Collateral Agreement-Waiver of Net Operating Losses, Capital Losses, and Unused Investment Credits

(6) The collateral agreement must be signed by the Appeals official authorized to approve the underlying offer. See IRM 5.8.6.2.1.1(6) . To determine which Appeals official must sign the underlying offer, refer to current Delegation Order 5-1, found at IRM 1.2.44.2.1 , Acceptance Authority, and on the Appeals OIC Web Page.

Offer from an Operating Business

(1) When an offer is accepted to compromise trust fund tax owed by an operating business, the taxpayer may be relieved of a significant operating expense which could grant the delinquent taxpayer an economic advantage over competitors who are in tax compliance. Recovery of the unpaid trust fund tax amount is a significant issue when considering an offer from a business taxpayer. In the interest of "fairness to all taxpayers" the Service must be cautious to avoid providing financial advantages to those taxpayers through the forgiveness of employment tax debt, as this may be detrimental to competitors who are remaining in compliance with their tax obligations. Procedures in IRM 5.8.4.24, Offers from Operating Businesses, must be followed when considering an appealed offer from all In-Business Trust Fund (IBTF) taxpayers, including sole proprietorships, partnerships, LLCs and corporations.

(2) On February 5, 2008, Collection changed its procedures for evaluating offers involving trust fund taxes. An interim guidance memorandum dated January 28, 2008, was issued by Collection and later incorporated into the September 2008 revision of IRM 5.8.4.13.1 and 5.8.4.13.2.

(3) If the offer under consideration was received by the Service on or after February 5, 2008, to compromise trust fund tax, all issues outlined in the current revision of IRM 5.8.4.22.1, Trust Fund Liabilities, must have been addressed by Collection before sending the non-CDP offer case to Appeals. This includes:

  • full payment of the trust fund portion of the unpaid tax,

  • assessment of the TFRP(s), or

  • the TFRP(s) submitted by Collection for assessment

Note: Special considerations have been granted to taxpayers who have documented fraud by a Payroll Service Provider (PSP). Review provisions of IRM 5.8.11.2.2.1, Public Policy or Equity Compelling Factors, IRM 5.8.11.4.3, Determining an Acceptable Offer Amount, and IRM 5.8.11.5, Documentation and Verification, to determine if these allowances apply.

(4) Per IRM 8.23.2.4, return the case to Collection as a premature referral if the offer was received by the Service on or after February 5, 2008, and the trust fund tax is not fully paid or the TFRP(s) is not assessed or in the process of being assessed, unless Collection has clearly documented either a non-assertion determination or the case being under Law Enforcement Manual (LEM) criteria.

Corporate Trust Fund Offer Procedures

(1) On January 28, 2008, Collection issued interim guidance for offers involving taxpayers who owe trust fund tax. The new procedures were incorporated into the September 2008 revision of IRM 5.8.4.13 and the current revision of IRM 5.8.4.22.1. Provided are the following changes for all offers involving trust fund taxes received on or after February 5, 2008:

  • Only the amount representing the RCP of the corporation is needed to compromise a corporate trust fund liability -- the RCP of the person(s) responsible for the Trust Fund Recovery Penalty (TFRP) is no longer needed as part of the corporate trust fund offer, and

  • The trust fund portion of the tax liabilities must be paid, the TFRP was either assessed or forwarded (by Collection) for assessment, or a non-assertion determination was made before the corporate offer may be evaluated

    Note: Special considerations have been granted to taxpayers who have documented fraud by a Payroll Service Provider (PSP). Review provisions of IRM 5.8.11.2.2.1, Public Policy or Equity Compelling Factors, IRM 5.8.11.4.3, Determining an Acceptable Offer Amount, and IRM 5.8.11.5, Documentation and Verification, to determine if these allowances apply.

(2) The changes to procedures for offers involving trust fund tax received by the Service on or after February 5, 2008, have no separate or distinct impact on how Appeals will handle non-CDP offers because Collection will have already addressed all aspects of the offer affected by such changes before rejection. With a non-CDP offer, Appeals need only follow the new criteria for determining RCP mentioned above and the new procedures as outlined in the current IRM 5.8.4.22.1.

Note: The manner in which Appeals processes and evaluates offers involving trust fund tax received as part of a CDP case changed significantly under the revised procedures. See IRM 8.22 for procedures for corporate trust fund offers received by Appeals as an alternative to collection in a CDP case.

(3) The procedures in the September 2008 revision of IRM 5.8.4.13.2 remain in effect for all offers (CDP and non-CDP) received by either Collection or Appeals on or before February 4, 2008. The procedures for pre-February 5, 2008, offers state the amount offered to compromise a corporate liability involving trust fund tax must include the amount that may be collected from the corporate entity and all persons responsible for the TFRP up to the amount of the TFRP, plus interest, if assessed.

(4) Consult IRM 8.23.2.4 and its related subsections and IRM 8.23.2.5 for premature referral or compliance issues that may be applicable.

Offers for Other Liabilities

(1) The chart below contains IRM references for offers involving various other issues:

Issue

IRM Reference(s)

Child - Child Support Obligations

IRM 5.8.1.5.5

Child - Offers from a Minor Child

IRM 5.8.1.5.6

Erroneous Refunds (Non-Rebate)

IRM 5.8.4.23.4

Limited Liability Companies (LLC)

IRM 5.8.5.26, IRM 5.8.5.26.1, IRM 5.1.21.10.2

Partnership Liabilities

IRM 5.8.4.22.2

Restitution

IRM 5.8.4.23.2

Trust Fund Liabilities (including Excise Taxes)

IRM 5.8.4.22.1, IRM 8.23.3.6, IRM 8.23.3.6.1

Effective Tax Administration Offers

(1) If it is determined that there is no basis to accept an offer under doubt as to collectibility (DATC) or doubt as to liability (DATL), the offer may still be accepted if it is determined that doing so:

  1. would promote effective tax administration, and

  2. would not undermine other taxpayers' compliance with the tax laws.

(2) IRM 5.8.11, Offer in Compromise, Effective Tax Administration, contains information about ETA offers and DATC offers where the taxpayer presents "special circumstances" (DATC-SC) as a basis to accept the offer and the procedures for evaluating such offers.

(3) Under ETA, the taxpayer does not dispute being financially capable of paying the liability in full. To accept an ETA offer, the taxpayer must establish that:

  • Paying the full tax liability would cause an economic hardship (see below), or

  • Compelling public policy or equity/fairness considerations exist that would undermine public confidence that the tax laws are being administered in a fair and equitable manner if required to pay in full. These "public policy" or "equity" offers are sometimes referred to as "non-hardship" ETA offers.

(4) Under DATC-SC, the taxpayer does not have the ability to pay in full and does not dispute being financially capable of paying more than the amount being offered. To accept a DATC-SC offer, the taxpayer must establish that:

  • Paying the full RCP amount would cause an economic hardship (see below), or

  • Compelling public policy or equity/fairness considerations exist that would undermine public confidence that the tax laws are being administered in a fair and equitable manner if required to pay the full RCP amount.

(5) ETA and DATC-SC offers require a more subjective evaluation. Although IRM 5.8.11 is comprehensive, it is simply not practical to try to draft guidance that encompasses every event or situation.

(6) ETA and DATC-SC offers based upon economic hardship are not uncommon. For purposes of ETA and DATC-SC offers, the definition of economic hardship is found in Treas. Reg. 301.6343-1(b)(4)(i). Often a taxpayer presents circumstances reflecting one or more of the factors outlined in IRM 5.8.11 or closely resembling many aspects of an example cited in the IRM or Treas. Reg. 301.7122-1, but the case for ETA or DATC-SC acceptance for the amount proposed by the taxpayer falls apart when actual dollars are factored in. A decision in an ETA or DATC-SC hardship offer requires a three-tiered approach:

  1. Does the taxpayer present exceptional circumstances meriting ETA or DATC-SC consideration?

  2. Would payment of more than the offered amount cause the taxpayer to be unable to meet future necessary living expenses?

  3. Would acceptance of the offer undermine other taxpayers' compliance with the tax laws?

An acceptable offer requires affirmative answers to questions 1 and 2, and a negative answer to question 3.

Note: Delegation Order 5-1 authorizes an ATM to approve the acceptance of an offer based upon ETA-hardship or DATC-SC hardship if the assessed liability is less than $250,000. The approval of the Appeals Area Director is still required in an ETA offer with economic hardship if the assessed liability is $250,000 or more.

(7) Offers based upon public policy or equity considerations are more rare.

  1. Acceptance of any ETA or DATC-SC offer (either CDP or non-CDP) based in whole or in part on public policy or equity considerations requires review and approval by the Director, Collection Appeals.

  2. Rejection of any ETA or DATC-SC offer (either CDP or non-CDP) based in whole or in part on public policy or equity considerations requires review and approval by either an ATM or ATCL.

(8) See Delegation Order 5-1 at IRM 1.2.44.2 and on the Appeals OIC Web Page.

Consideration of Doubt as to Liability (DATL) Offers

(1) The hearing officer will make an independent determination regarding any offers. A DATL offer will generally be evaluated by the hearing officer in the same manner as an audit reconsideration case. The hearing officer should consider the facts and law as well as the hazards of litigation in determining the degree of doubt as to the liability.

(2) IRC 7122(d)(3) provides that a DATL offer may not be rejected solely because the Service cannot locate the taxpayer’s return or return information. The Service is also prohibited from requesting a financial statement if an offer is based solely on doubt as to liability.

(3) Appeals will consider offers based on DATL where the offer was rejected by Exam, TEGE, a specialty group, or Collection. Assignment of such cases will generally be made to employees having expertise in the particular tax area for the liability in dispute.

(4) Any DATL OIC (CDP or non-CDP) work unit (WUNO) should have ACDS feature code “LI”.

(5) Under IRC 7122(f) and the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), an offer shall be deemed accepted if the IRS does not make a determination regarding whether to accept the offer and notify the taxpayer of its determination. The above action must have taken place before the date which is 24 months after the date of receipt of such offer by the IRS. See also IRM 8.21.5, Collection Statutes.

(6) This 24-month TIPRA period ends when the offer is rejected, so most non-CDP offers received in Appeals will not have open TIPRA statute issues. However, the hearing officer should review IRM 8.23.2.3, Initial Case Review and Statute Controls, to make sure an OIC WUNO contains the proper statute controls.

(7) A DATL offer acceptance must be payable within 90 days unless an alternative payment term is approved at the time the offer is accepted. See Form 656-L.

(8) If the DATL offer came to the hearing officer after being rejected, the case file should be fully developed and documented. If the case file is not fully developed and documented, the hearing officer will not return the case as a premature referral. The hearing officer should weigh the development of the case by the originating function versus information and testimony provided to Appeals by the taxpayer and make a decision based upon those factors.

(9) If the DATL offer case came to the hearing officer because the liability at issue was previously determined by Appeals, then Appeals has jurisdiction over the case and the originating office is not responsible for the initial development of the case or securing the closed administrative file before forwarding the case to Appeals. See IRM 8.23.3.9.2 for guidance pertaining to such cases.

Note: Even if Appeals recently closed a tax case (income tax, employment tax, etc.) involving the very same liability that is now the subject of the DATL offer, the hearing officer is still responsible for deciding the disposition of the offer. Such a case is not a premature referral, return, withdrawal or rejection, just because the previous tax case was closed recently before the submission of the DATL offer.

(10) The total amount of money offered must be indicated and must be more than zero. If a DATL offer is received by Appeals that is not for more than $0.00, the offer will be returned. The hearing officer will close a return by sustaining rejection; no separate independent administrative review is necessary.

(11) Non-compliance in filing of required federal tax returns does not preclude Appeals from considering and accepting an appealed DATL offer or from making appropriate adjustments via Form 3870.

(12) A DATL offer is no longer considered when a taxpayer is in bankruptcy. If an open bankruptcy is identified during consideration of the DATL offer, sustain rejection.

Examination or Specialty DATL Offers - Liability Previously Determined by a Court

(1) If the taxpayer submits Form 656-L and the liability was finally determined by the Tax Court, other courts, or by a Final Closing Agreement authorized under IRC 7121 (e.g. Forms 866 or 906), then there is no doubt concerning the existence or amount of the liability. The offer will be returned. The hearing officer will close a return by sustaining rejection; no separate independent administrative review is necessary.

Note: First, the hearing officer should search ACDS and IDRS for litigation codes and confirm that the case was decided on the merits, as opposed to dismissed and not considered by the Court.

Exception: If the offer is based upon a computational error by the Service after the decision was entered (e.g., penalties assessed contrary to the decision), the hearing officer should consider the offer. Review the decision document to ensure that the assessment is based upon the agreement. If an adjustment is required, prepare Form 3870 and return the offer. Close a return by sustaining rejection; no separate independent administrative review is necessary

Note: See IRM 8.23.2.4(5), for an exception for a case closed on ACDS with Closing Code 21.

Examination or Specialty DATL Offers - Liability Previously Determined by Form 870-AD

(1) If the taxpayer submits Form 656-L and the liability was previously determined by other agreement reached in Appeals, (e.g., hazards or Form 870-AD type agreement), the originating function will forward the timely appealed case for consideration by Appeals without initial development. See IRM 8.6.4.3 , Agreement Forms Secured in Appeals Cases. The hearing officer will secure the administrative file and make a determination on the DATL following the guidance in Policy Statements P-8-2 and P-8-3.

Caution: See IRM 8.23.2.4(5) for an exception for a case closed on ACDS with Closing Code 21.

(2) If the taxpayer submits new information that, in the hearing officer’s judgment, requires additional analysis or investigative action, the hearing officer will retain jurisdiction of the case and return the new information to the originating function via Form 5402. Forms 10467 or 2209 may also be used in addition to a Form 5402. Situations requiring a referral back to the originating function will be rare. Refer to IRM 8.23.3.3.1.4 for suspense codes to use.

Note: If the new information only affects the consideration of hazards, the hearing officer will evaluate the probative value of the new information and make a determination on the DATL. A referral to the originating function should not be made in these cases.

(3) The originating function has 45 days to take action on the new information and respond to the hearing officer. This time-frame may be extended by mutual agreement. The hearing officer will notify the taxpayer of the referral to the originating function, provide the findings to the taxpayer, and give them an opportunity to respond prior to making any case determination. The hearing officer will also retain responsibility for any open TIPRA statute.

(4) If there is no response from the originating function or the taxpayer after 45 days, and no requests for extension have been agreed, the hearing officer will make a determination based upon the available information, including the uninvestigated items provided by the taxpayer.

Examination or Specialty DATL Offers - Liability Previously Determined by Form 870 or Defaulted Statutory Notice of Deficiency (SNOD)

(1) If the taxpayer submits new information during Appeals’ consideration of a rejected DATL offer which was previously closed with a Form 870 or a defaulted SNOD, then the hearing officer will retain jurisdiction and transmit the new information to the originating function via Form 5402. Form 10467 or Form 2209 may also be used in addition to Form 5402. Referrals of this kind should generally be rare. Refer to IRM 8.23.3.3.1.4 for suspense codes to use.

Note: Documents previously inaccessible to the taxpayer or which require a more in-depth analysis or investigation would be appropriate for a referral to the originating function. This includes new issues raised by the taxpayer while in Appeals.

(2) If the new information only affects the consideration of hazards, then the hearing officer will evaluate the probative value of the new information and make a determination on the DATL. A referral to the originating function should not be made.

(3) If new information does not require additional analysis or investigative action, the hearing officer will make the determination on the DATL.

(4) The originating function will have 45 days to take action on the new information and respond to the hearing officer. This timeframe may be extended by mutual agreement. The hearing officer will notify the taxpayer of the referral to the originating function, provide the findings to the taxpayer and, prior to making a case determination, give the taxpayer an opportunity to respond.

(5) If there is no response from the originating function or the taxpayer after 45 days, and no requests for extension have been agreed to, the hearing officer will make a determination based upon the available information, including the uninvestigated items provided by the taxpayer.

Tax Equity and Fiscal Responsibility Act (TEFRA) Liability Offers

(1) Upon receipt of an OIC case, secure an AMDIS or AMDISA print:

  1. If there is a Partnership Investor Control File (PICF) Code 5, there is at least one open TEFRA key case linkage. The taxpayer should have been advised by the investigating officer or function that an offer cannot be considered until all TEFRA partnership issues have been resolved. See IRM 5.8.4.15.1. Attempt to secure a withdrawal. If the taxpayer refuses to withdraw the offer, it should be returned to the investigating officer as a premature referral.

  2. If there is a PICF Code 7, there is at least one closed TEFRA key case linkage. Verify that any assessment as a result of the TEFRA key case was made and that the additional liability is included in the offer.

(2) DATL offers should not be accepted because a taxpayer's liability resulting from a TEFRA assessment is final and conclusive. In addition, the consistent settlement provisions of IRC 6224(c)(2) may apply.

(3) DATC offers and hardship ETA offers may be accepted, where appropriate, even where the tax liability involved an assessment resulting from a TEFRA entity. The fact that the liability is final is not a reason for rejecting the offer. The consistent settlement provisions of TEFRA do not apply to either DATC offers or hardship ETA offers. See IRM 8.19.8, Appeals Pass-Through Entity Handbook - Collection Cases.

(4) Non-hardship ETA offers based on public policy or equity grounds should not be accepted based on a taxpayer's contention that a provision of the tax law is unfair or that the TEFRA rules or the actions of the Tax Matters Partner (TMP) on behalf of the taxpayer caused an inequitable result. Other facts and circumstances may be present such that acceptance of an offer would be fair and equitable (see IRM 5.8.11), but consideration has to be given to whether the consistent settlement provisions of IRC 6224(c)(2) would apply.

(5) An Appeals employee considering acceptance of a non-hardship ETA offer that includes an assessment resulting from a TEFRA proceeding must discuss the issue with the Appeals TEFRA Technical Guidance Coordinator who will coordinate a response with the Appeals Program Analyst responsible for the Offer program.

(6) For other information regarding TEFRA liabilities in OIC cases, see IRM 8.19.8.5.

Doubt as to Liability (DATL) Offers Involving Trust Fund Recovery Penalty (TFRP) and Personal Liability for Excise Tax (PLET) Liabilities

(1) Under IRC 7122(f) and the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), an offer shall be deemed to be accepted if it is not rejected, returned, or withdrawn or treated as withdrawn under section 7122(c)(1)(B)(ii). The rejection, return or withdrawal of the offer must have taken place before the date which is 24 months after the date of receipt of such offer by the IRS. See also IRM 8.21.5, Collection Statutes.

(2) This 24-month TIPRA period ends when the offer is rejected by Collection, so most non-CDP offers Appeals considers will not have open TIPRA statute issues. However, review IRM 8.23.2.3, Initial Case Review and Statute Controls, to make sure the OIC WUNO contains the proper statute controls.

(3) If an offer involving a TFRP or PLET assessment is based upon DATL and was rejected by Collection, the case file should be fully developed and documented. If the case file is not fully developed and documented, the Appeals hearing officer will not return the case as a premature referral. The hearing officer will weigh Collection’s development of the issue versus information and testimony provided by the taxpayer and make a decision based upon those factors. See subsections related to IRM 8.23.3.10.5 for guidance if new information is presented by the taxpayer to Appeals.

(4) If the DATL offer case was assigned to an Appeals employee because the liability at issue was previously determined by Appeals, then Appeals has jurisdiction over the case and Collection is not responsible for any initial development of the case or for securing the closed administrative file before forwarding a timely appealed case to Appeals.

Note: Even if Appeals recently closed a TFRP or PLET case involving the very same liability that is now the subject of the DATL offer, the Appeals hearing officer is still responsible for either accepting or sustaining rejection of the offer. Such a case is not a premature referral, return, withdrawal or rejection just because the previous TFRP case was closed recently before the DATL offer was submitted.

(5) The OIC work unit (WUNO) must have feature code 'LI' indicating it is a DATL offer.

(6) A DATL offer acceptance must be payable within 90 days unless an alternative payment term is approved at the time the offer is accepted. See Form 656-L.

(7) IRM 8.25 contains instructions for working TFRP cases in Appeals. IRM 5.8.4 also contains guidance for working DATL offers involving TFRP and PLET assessments. Consult the chart in IRM 8.23.3.9.10 for how to resolve a DATL offer case (acceptance, rejection or withdrawal, and the use of Form 3870).

(8) Once the offer amount is paid, acceptance of a DATL offer concludes the TFRP or PLET matter for the taxpayer. Once accepted, there is no five-year compliance or refund offset provisions on a DATL offer.

(9) If an adjustment is being made to the TFRP or PLET, even if the offer is to be withdrawn or rejected, the hearing officer must prepare the Form 3870 to provide instructions to APS regarding any adjustments that need to be made. The ACM should also explain the basis of the adjustments. APS will forward the Form 3870 to the correct Collection Advisory Unit, along with any TFRP assessment case file.

(10) Non-compliance in filing of required federal tax returns does not preclude the hearing officer from considering and accepting an appealed DATL offer or from making appropriate adjustments via Form 3870.

(11) A DATL offer is no longer considered while the taxpayer is in bankruptcy. If an open bankruptcy is identified during consideration of the DATL offer, the hearing officer will sustain rejection.

(12) The taxpayer must offer an amount more than $0.00. If a DATL offer is submitted that is not for more than $0.00, return the offer. The hearing officer will close a return by sustaining rejection. No separate independent administrative review is necessary.

Note: Once the offer is closed, the hearing officer may choose, at their discretion, to work the issue as an informal claim. See IRM 8.25.1.7.4.1.

TFRP or PLET Issue DATL Offers - Liability Previously Determined by a Court

(1) If the taxpayer submits Form 656-L and the liability was finally determined by the Tax Court, another court, or by a final closing agreement authorized under IRC 7121 (e.g., Forms 866 or 906), there is no doubt concerning the existence or amount of the liability. The offer will be returned. The hearing officer will close a return by sustaining rejection. No separate independent administrative review is necessary.

Note: The hearing officer should first research ACDS and IDRS for litigation codes and confirm that the case was decided on the merits, as opposed to being dismissed and not considered by a court.

Exception: See also IRM 8.23.2.4(5) for an exception for a case closed on ACDS with Closing Code 21.

Exception: If the offer is based upon a computational error made by the Service after the decision was entered, the offer should be considered. The hearing officer should review the decision document to ensure that the assessment is based upon the court’s decision.

TFRP or PLET Issue DATL Offers - Liability Previously Determined by Form 2751-AD

(1) If the taxpayer submits Form 656-L and the liability was previously determined by other agreement reached in Appeals, (e.g., hazards, Form 2751-AD), Collection will forward the timely appealed DATL for consideration by Appeals without any initial development. The hearing officer will secure the administrative file and make a determination on the DATL offer following the guidance in Policy Statements P-8-2 and P-8-3.

Note: See IRM 8.23.2.4(5) for an exception for a case closed on ACDS with Closing Code 21.

(2) If the taxpayer submits new information that, in the hearing officer’s judgment, requires additional analysis or investigative action, the hearing officer will retain jurisdiction of the case and, using Form 2209, Courtesy Investigation, return the new information to the originating function. Situations requiring the use of a Form 2209 and referral back to the originating function should be highly uncommon. Refer to IRM 8.23.3.3.1.4 for suspense codes to use.

Note: If the new information only affects the consideration of hazards, the hearing officer will evaluate the probative value of the new information and make a determination on the DATL offer. A referral to the local Collection team will not be made.

(3) The local Collection team has 45 days to review and comment on the new information and to respond to the hearing officer. This timeframe may be extended by mutual agreement.

(4) The hearing officer will retain jurisdiction of the case while the originating function considers the new information. The hearing officer will be responsible for monitoring any open TIPRA statutes.

(5) The hearing officer will notify the taxpayer of any referral to the originating function (e.g., Field OIC group), share the referral’s findings with the taxpayer, and give the taxpayer an opportunity to respond prior to making a case determination.

(6) Consult IRM 8.25.2.4.2 for more information regarding case analysis and new evidence.

TFRP and PLET Issue DATL Offers - Liability Previously Determined by Form 2751 or Defaulted Letter 1153

(1) If the taxpayer submits new information during the hearing officer’s consideration of a rejected DATL offer which was previously closed with a Form 2751 or a defaulted Letter 1153, the hearing officer will retain jurisdiction and return the new information to the originating function via Form 2209. Situations where the hearing officer requests development of new information will be highly uncommon. Refer to IRM 8.23.3.3.1.4 for suspense codes to use.

New information includes documents previously inaccessible to the taxpayer or those which require a more in-depth analysis or investigation. This includes new issues raised by the taxpayer while in Appeals.

Note: If the new information only affects the consideration of hazards, the hearing officer will evaluate the probative value of the new information and make a determination on the DATL. A referral to the originating function will not be made.

(2) If new information does not require additional analysis or investigative action, the hearing officer will make the determination on the DATL offer.

(3) The originating function will have 45 days to review and comment on the new information and respond to the hearing officer. This timeframe may be extended by mutual agreement.

(4) The hearing officer will notify the taxpayer of any referral to the originating function (e.g., Field OIC group), share the referral’s findings with the taxpayer, and give an opportunity to respond prior to making a case determination. Consider using Appeals’ Letter 5208 to notify the taxpayer of the referral.

(5) The hearing officer will retain jurisdiction of the case while the originating function considers the new information.

(6) Consult IRM 8.25.2.4.2 for more information regarding case analysis and new evidence.

IRC 6673 Penalties - DATL Offers

(1) If a taxpayer submits a Form 656-L for an IRC 6673 penalty:

  1. Obtain a copy of the Tax Court decision or order imposing the penalty from the US Tax Court web page at http://www.ustaxcourt.gov.

  2. Confirm the penalty was properly assessed by reviewing IDRS.

  3. The penalty cannot be compromised under DATL if the liability was established by a court decision or judgment.

  4. Counsel generally recommends against compromise of an IRC 6673 penalty under DATL or effective tax administration grounds. The penalty is an important tool used by the Tax Court to deter frivolous litigation. However, compromise on Doubt as to Collectibility may be appropriate if the taxpayer abandons frivolous arguments and comes into tax compliance.

Doubt as to Liability (DATL) - Resolution Options

(1) The table below contains actions necessary to make the adjustments to an account or to accept a DATL offer.

If...

Then...

The case is resolved by a redetermination of liability that is not based upon hazards

The balance of the assessment in excess of the re-determined liability amount should be abated using a Form 3870.

  1. Ask the taxpayer to withdraw the offer.

  2. If the taxpayer does not withdraw the offer, sustain rejection using the DATL optional paragraph on the rejection letter (Letter 5197) on APGolf.

  3. The Form 3870 adjustment will be made by APS if the offer is a DATL other than TFRP or PLET.

  4. If the offer is on TFRP or PLET liabilities, APS will forward the Form 3870 to the correct Advisory Unit located on SERP, along with any TFRP assessment file.

It is determined that there is doubt as to liability based upon hazards of litigation

Close the case by accepting the offer. The acceptable amount depends on the degree of doubt established, based upon the hazards relative to the amount assessed. If the amount of the taxpayer's initial offer differs from the amount the hearing officer determined based upon hazards, amend the offer to the new amount prior to acceptance. To communicate acceptance of the offer to the taxpayer, use Appeals' Letter 5521, DATL OIC Acceptance Letter. Do not make any Form 3870 adjustments to the account.

It is determined that there is no doubt as to the liability

Close the case by using the DATL optional paragraph on the OIC rejection letter (Letter 5197) on APGolf.

(2) As stated in the table above, if the case is resolved by a redetermination of tax that does not include hazards, a Form 3870 must be used to make the proper adjustment, rather than to proceed with accepting the offer. This is because if the redetermination is made with a Form 3870, the adjustment is not dependent on any further action by the taxpayer. However, if the offer is accepted using Form 656-L, the taxpayer would still have to pay the offered amount and may lose tax refunds offset during the consideration of the offer. Acceptance of the DATL offer conclusively settles the tax liability at issue. However, if the taxpayer defaults on the accepted offer, the offer will be terminated and IRS must reinstate the original assessment without any adjustments.

(3) If a DATL offer is accepted, use Appeals' Letter 5521, DATL OIC Acceptance Letter, to communicate acceptance to the taxpayer.

(4) If the offer is withdrawn or rejection is sustained and no Form 3870 adjustment is necessary, close the case using normal procedures. See IRM 8.23.4.3 if the rejection is sustained and IRM 8.23.4.4 if the offer is withdrawn.

(5) Non-compliance in filing of required federal tax returns does not preclude the hearing officer from considering and accepting an appealed DATL offer or from making appropriate adjustments via Form 3870.

(6) The IRS will not consider a DATL offer during the taxpayer’s bankruptcy proceeding. If an open bankruptcy is identified during consideration of the DATL offer, the hearing officer must return the offer. Close a return by sustaining rejection. No separate independent administrative review is necessary.

(7) The IRS will not consider a DATL offer for a liability issue that was previously resolved with finality. See paragraph (3) of IRM 8.7.7.11.2, Reconsideration of Claim Previously Disallowed and Previously Considered by Appeals.

Death of Taxpayer While OIC Case in Appeals

(1) Consideration of an OIC submitted by a single taxpayer must be terminated upon the death of that taxpayer. The date of termination and the date for the TC 482 is the date of the taxpayer's death. A sample OIC Termination Letter is available on the Appeals OIC Web Page.

(2) If the offer under consideration was submitted jointly by a husband and wife and only one spouse died, follow the procedures in IRM 5.8.10 to determine whether to continue with consideration of the jointly-submitted offer.

Alternative Resolutions for Offers

(1) The Appeals hearing officer’s role in a rejected offer is to resolve the disputed issues. Although a taxpayer may express an interest in alternative resolutions when it is apparent that an offer is not a viable option, the hearing officer will not deviate from Appeals’ role when considering the rejection of a non-CDP offer.

(2) If an offer cannot be accepted, the hearing officer must communicate the reason(s) why and discuss alternatives (such as installment agreements and Currently Not Collectible status, as applicable) that the taxpayer may pursue with Collection. Do not refer the taxpayer back to COIC or Field offices. Close the offer and refer the taxpayer to Form 9465, Installment Agreement Request, and/or IRS Telephone Assistance at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses). The Form 9465 contains information on user fees for the different methods of making payments under an installment agreement.

(3) NFTL filing determinations are not to be made by the hearing officer. Notify the taxpayer verbally or in writing that Collection may file an NFTL after the case is closed. If the taxpayer indicates intent to file a Collection Appeal Request, refer them to the Collection employee who worked the initial case and close the OIC following normal procedures.

Potential Default Offers

(1) A taxpayer must agree to the terms set forth in the Form 656. The compromised amount remains a tax liability until the taxpayer meets all the terms and conditions of the offer. See Form 656, Section 7.

(2) A taxpayer entering into either a DATC or ETA offer agreement must agree to comply with all filing and payment obligations under the Internal Revenue Code for a period of 5 years after the offer is accepted. See Form 656, Section 7.

Note: The taxpayer’s failure to report or pay an individual shared responsibility

payment (SRP) liability made under IRC 5000A and/or any individual SRP liability assessment made after acceptance will not default the offer.

(3) If a taxpayer fails to meet any of the terms of the offer, the Service has the right to terminate the offer, reinstate the compromised liability, and pursue collection action against the taxpayer. If the liabilities are jointly owed and the offer was jointly submitted, the default provisions apply only to the party who failed to comply. See Form 656, Section 7.

(4) IRM 1.2.44.2.4(6) grants the Monitoring Offer in Compromise Unit (MOIC) the authority to default any offer where the taxpayer is not proposing an alternative solution to the potential default. If the taxpayer proposes an alternative (such as an offer on an offer) and Appeals initially accepted the offer, Appeals will consider the taxpayer’s potential default.

(5) MOIC refers the potential default to Appeals on Form 2209, Courtesy Investigation, and provides the following additional information:

  1. A copy of the "Terms" and" MFT" Screens from AOIC

  2. A copy of the AOIC history, reflecting actions already taken by MOIC on the potential default

  3. A copy of the AOIC payment screen

  4. Taxpayer contact information, including the last known telephone number of the taxpayer and/or representative

  5. Fax number of the Form 2209 originator

  6. An explanation in the Form 2209 of the cause of the potential default

  7. Copies of correspondence between the taxpayer and MOIC, including any proposals by the taxpayer to cure the potential default

(6) Upon receipt of the potential default case in Appeals, the case will be opened as an offer on ACDS in order to place time on the specific case. APS should note it as a pending defaulted offer in compromise by using feature code "DO".

(7) Generally, all potential default offer cases will be worked by the Brookhaven Appeals office. Exceptions to this may be as follows:

  1. Proposals received on offers originally accepted by a field Appeals office may be assigned to the same Appeals team that originally accepted the offer.

  2. Proposals received on field and campus CDP offers that are subject to retained jurisdiction may be assigned to the field or campus team that accepted the CDP offer.

(8) When working a potential default case and the hearing officer becomes aware of the death of a taxpayer, it must be determined whether there is an estate. If this determination was not made prior to the potential default offer case being assigned to Appeals, an ARI may be needed. The ARI should be issued to Collection Advisory to determine if there is an estate and to request that Collection Advisory file a proof of claim for the balance owed on the offer. The hearing officer will hold the potential default case open until Collection Advisory responds to the ARI. If there is no estate, the hearing officer will simply close out the offer case as satisfied following procedures in this section.

(9) If the offer in default was accepted as part of a CDP hearing, the taxpayer may be entitled to a retained jurisdiction hearing with Appeals. See IRM 8.22 concerning retained jurisdiction. Do not establish a retained jurisdiction case on ACDS. It should be noted on ACDS as a defaulted offer and not a new offer.

(10) If the taxpayer was not able to remedy the potential default issue, the hearing officer may default the offer or accept the offer under the Compromise of a Compromise procedures outlined in IRM 8.23.3.13, Compromise of a Compromise, below.

(11) If the taxpayer is deceased, the hearing officer will verify TC 540 was input, and if it was not, request that APS manually input the TC 540. The potential default case will be closed to MOIC advising them that the taxpayer is deceased, that the TC 540 was requested and the results of any ARI that was issued to Collection Advisory.

Compromise of a Compromise

(1) In cases where the taxpayer is unable to pay the balance of an accepted offer, the balance of a non-rebate erroneously issued refund, or the balance of the contingent liability under the terms of a collateral agreement, and the investigation reveals that extreme hardship or other circumstances exist which would justify that a default is not in the best interest of the government, then the Service may:

  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

(2) A Form 656 is not required to make the proposal, and there is no other standard form for such a proposal. The proposal should be submitted in letter format and addressed to the Commissioner of the Internal Revenue. Generally, IRM Exhibit 5.8.9-2 may be used for this purpose.

(3) If Appeals initially accepted the offer, Appeals will consider the taxpayer’s “compromise of a compromise” proposal.

(4) Further substantive information that is provided to Appeals by the taxpayer should be referred by the hearing officer via an ARI request to the Collection Drop Point manager that originally investigated the offer. It is recommended to send the ARI request by fax or e-mail to the Drop Point Manager.

Note: For offers investigated and accepted by Appeals prior to policy changes effective August 11, 2014, in which an offer on an offer proposal is submitted requiring financial verification, the hearing officer will initiate an ARI to the appropriate Collection Drop Point manager based on the taxpayer’s location.

(5) In Appeals, Compromise of a Compromise cases will generally be assigned to Brookhaven Service Center Appeals for considerations but may also be assigned as follows:

  1. Proposals received on offers originally accepted by a field Appeals office may be assigned to the same Appeals team that originally accepted the offer.

  2. Proposals received on field and campus CDP offers that are subject to retained jurisdiction may be assigned to the field or campus team that accepted the CDP offer.

(6) For information on CDP hearings on terminated OICs, refer to IRM 8.22.

(7) When working a potential default case and the hearing officer becomes aware of the death of a taxpayer, it must be determined whether there is an estate. If this determination was not made prior to the potential default offer case being assigned to Appeals, an ARI may be needed. The ARI should be issued to Collection Advisory to determine if there is an estate and to request that Collection Advisory file a proof of claim for the balance owed on the offer. The hearing officer will hold the potential default case open until Collection Advisory responds to the ARI. If there is no estate, the hearing officer will simply close out the offer case as satisfied following procedures in this section.

(8) If the taxpayer is deceased, the hearing officer will verify the TC 540 was input, and if it was not, request that APS manually input the TC 540.

(9) When making an acceptance recommendation for a compromise of a compromise proposal, the case must be forwarded to Counsel for a legal sufficiency review if the original offer was subject to that review. The documents to forward to Counsel include:

  1. The taxpayer's written proposal for the compromise of a compromise

  2. A fully completed Form 7249 that reflects the new terms of acceptance

  3. Redacted or sanitized transcripts

  4. Other documentation from the compromise of a compromise investigation

    Note: Do not include the administrative file from the initial offer acceptance unless it is readily available.

(10) To properly record the acceptance, prepare a redacted Form 7249 and include redacted transcripts to forward to the appropriate public inspection file office.

(11) See IRM 8.23.4.6, Compromise of a Compromise, for final procedures to close out such cases.

Offer Rescission Considerations

(1) An accepted OIC is an agreement that is binding on both the government and the taxpayer. After acceptance, further inquiry into matters relating to the accepted OIC is precluded, except where one or more of the following is identified:

  • False information or documents are supplied in connection with the offer;

  • The ability to pay or the assets of the taxpayer are concealed; or

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

(2) Although such situations will be very uncommon, it may be necessary to consider a request to rescind or terminate an OIC or revise an accepted OIC. Refer to IRM 5.8.9 for complete guidance in these situations.

(3) Where Appeals accepted the OIC, Appeals is responsible for making the determination to rescind the OIC and will also be responsible for completion of all required actions identified in IRM 5.8.9.

Note: In instances where an offer was accepted as a collection alternative in a Collection Due Process case, Appeals is not authorized to rescind the offer.

(4) If Appeals receives a referral from Collection to consider rescission due to a potential fraud issue, the fraud issue should be developed to a point no less than having agreement by the Fraud Technical Advisor that the potential for fraud exists. See IRM 5.8.4.18, Potential Fraud Referrals. This refers only to a fraud concern and not to any of the other items identified in (1) above.

(5) For purposes of issue tracking and to review for possible policy implications, rescission recommendations made by Appeals will be forwarded to the Appeals Director of Case and Operations Support with jurisdiction over the OIC program prior to taking any final actions.

Identity Theft Issues

(1) The presence of identity theft (IDT) issues does not prohibit consideration of an offer. Each case will need to be considered on its own merits since there may be unique issues impacting the case decision.

(2) If an offer is accepted that involved IDT issues, information on the IDT period(s) must be provided to MOIC with the acceptance file and documented in ACDS and in the "remarks" section of Form 5402. Make the remarks on Form 5402 to be easily seen by APS so that APS can make the appropriate notation in AOIC.

This data was captured by Tax Analysts from the IRS website on December 03, 2023.
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