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Part 5. Collecting Process

Chapter 8. Offer in Compromise

Section 4. Investigation

5.8.4  Investigation

5.8.4.1  (09-23-2008)
Overview

  1. This chapter provides:

    • Instructions for conducting the different types of offer investigations.

    • Definitions for considering each possible basis under which an offer may be filed.

    • Directions for coordinating activities with other Service functions.

5.8.4.2  (09-23-2008)
Doubt as to Liability

  1. After initial processing, offers based on DATL of a TFRP or PLET are transferred to Area offices for assignment to Offer Specialists. All other DATL offers should be forwarded with no initial processing, to the centralized DATL processing unit located at the Brookhaven campus.

  2. For offers based on DATL of a TFRP or PLET, the decision to accept or reject rests primarily on a reconsideration of whether or not the person assessed was responsible for and willfully failed to pay over the subject tax. Offers on assessments of this nature that were determined by Appeals or that received an Appeal hearing should be transferred to Appeals for consideration.

  3. The taxpayer must offer a dollar amount. An offer for zero dollars on this basis is not acceptable and is subject to perfection requirements. The amount may be a cash or deferred offer, but must be payable within 90 days of acceptance.

  4. The administrative file should be secured and reviewed to examine the evidence that supported the assessment. New information, testimony or documents presented by the taxpayer should be considered. Refer to IRM 5.7, Trust Fund Compliance Handbook, for a discussion of the factors and evidence that support an assessment of a TFRP or PLET.

  5. A DATL offer should be resolved in one of the following ways:

    If… Then…
    No new information is available and the TFRP or PLET file supports the original assessment Reject the offer.
    Another amount of liability is determined and the taxpayer agrees to the finding Prepare and submit the Form 3870, Request for Adjustment, to correct the assessment and secure a withdrawal of the offer or recommend acceptance of the offer for the correct amount.
    Another amount of liability is determined and the taxpayer still does not agree Submit a Form 3870 to correct the assessment and recommend rejection of the offer.
    The Administrative file does not support the assessment Abate the assessment in full and secure a withdrawal of the offer.

    Note:

    If new information is presented that raises doubt or the existing information supporting the assessment is weak, consider accepting an offer to avoid the hazards of litigation.

5.8.4.3  (09-23-2008)
Effective Tax Administration and Doubt as to Collectibility with Special Circumstances

  1. Refer to IRM 5.8.11, Effective Tax Administration, for a full discussion on how to investigate and determine acceptability of offers submitted under ETA or Doubt to Collectibility with Special Circumstance (DCSC).

    Note:

    OI's should review comments in Section VI to determine if specific special circumstances or effective tax administration issues are discussed, which should be considered. Statements such as "I cannot pay" will be addressed via the determination of the taxpayer's RCP.

  2. ETA offers can be accepted only when:

    • There is no doubt the tax is owed and no doubt that the full amount owed can be collected from the taxpayer.

    • The taxpayer has a proven economic hardship or has presented facts that would support acceptance under the public policy/equity basis, and

    • Compromise would not undermine compliance with tax laws.

  3. DCSC offers can only be accepted when the taxpayer cannot fully pay the tax due, but has proven special circumstances that warrant acceptance for less than the amount of the calculated RCP.

  4. Factors establishing special circumstances under DATC are the same as those considered under ETA. See IRM 5.8.11, Effective Tax Administration, for a list of those factors.

5.8.4.4  (09-23-2008)
Doubt as to Collectibility

  1. DATC offers may be worked either in the COIC site by an OE or in Area offices by an OS. Cases assigned to an OE in COIC may be forwarded to Area offices for assignment to an OS if complex issues requiring a field investigation are identified.

  2. For DATC offers, the decision to accept or reject usually rests on whether the amount offered reflects the RCP. The exception to this rule would be for offers not accepted based on public policy reasons. RCP is defined as the amount that can be collected from all available means, including administrative and judicial collection remedies. Generally, the components of collectibility outlined in IRM 5.8.4.4.1 below, will be included in calculating the total RCP. See IRM 5.8.5, Financial Analysis, for more detail on how to analyze the taxpayers financial condition to arrive at the value of each component. In determining the taxpayers future ability to pay, full consideration must be given to the taxpayers overall general situation including such factors as age, health, marital status, number and age of dependents, education or occupational training and work experience.

  3. Offers should not be accepted where the tax can be paid in full as a lump sum or can be paid under current installment agreement guidelines, unless special circumstances are identified that warrant consideration of a lesser amount. Once the ability to make payments is established, the investigating employee must determine if a greater amount can be collected through current installment agreement guidelines than is being offered. If so, the offer should be recommended for rejection, unless special circumstances warrant acceptance.

  4. To determine if the taxpayer can full pay, the calculation must be based on the balance due at the time the offer was submitted.

5.8.4.4.1  (09-23-2008)
Components of Collectibility

  1. The following four components of collectibility will ordinarily be included in calculating RCP for offer purposes:

    Components Definition
    Assets The amount collectible from the taxpayers net realizable equity in assets.
    Future Income The amount collectible from the taxpayers expected future income after allowing for payment of necessary living expenses.

    • For Lump Sum Cashoffers, if the offer is payable in 5 or fewer installments within 5 months – project for the next 48 months or the remaining statutory period, whichever is less; If the offer is payable in 5 or fewer installments in more than 5 months and less than 24 months – project for the next 60 months or the remaining statutory period, whichever is less; If the offer is payable in 5 or fewer installments in more than 24 months – project through the statutory period.

    • For Short Term Periodic Paymentoffers, it is the amount collectible over the next 60 months or the remaining statutory period, whichever is less.

    • For Deferred Periodic Payment offers, it is the amount that is collectible over the life of the collection statute.

    Amount Collectible from third parties The amount we could expect to collect from third parties through administrative or judicial action. For example, amounts collectible through assertion of a TFRP, a transferee assessment, nominee lien, or suit to set aside a fraudulent conveyance.
    Assets and/or income that are available to the taxpayer but are beyond the reach of the government Assets that the lien will not attach, such as equity in assets located outside the country.

5.8.4.5  (09-23-2008)
Screen for Obvious Full Pay (Centralized Offer in Compromise Procedures Only)

  1. In all cases, the OE will verify the full pay worksheet as prepared by the PE.

  2. If the amounts shown by the taxpayer on the CIS reflect that the taxpayer can fully pay the tax due by either liquidation of assets or through an installment agreement, the offer should be rejected without substantiation or further analysis. The National Standard Expenses and Local Housing and Transportation expense standards should not be applied for this analysis.

  3. Review the case to ensure no special circumstances exist that would warrant consideration under ETA. If the taxpayer submitted the offer under ETA, by marking the box on the Form 656, the offer will not be rejected under Screen for Obvious Full Pay criteria, but must be assigned to an OE or to the field as appropriate for further evaluation and consideration.

  4. Taxpayers who have submitted an offer with a CIS that reflects an ability to fully pay the tax, absent special circumstances, will immediately be issued a rejection letter. In these cases, prepare the Form 1271, Rejection or Withdrawal Memorandum, and attach the Full Pay Worksheet in lieu of the Offer Recommendation Report and Asset/Equity and Income/Expense tables as instructed in IRM 5.8.7, Return, Terminate, Withdraw, and Reject Processing.

5.8.4.6  (09-23-2008)
Actions Based on Reasonable Collection Potential

  1. Once the RCP has been calculated, process the case as follows:

    If… Then…
    The Screen for Obvious Full Pay shows the taxpayer can full pay based on CIS (COIC procedures only) The rejection letter should be issued. (See IRM 5.8.7, Return, Terminate, Withdraw, and Reject Processing)
    The offer must be increased in order to be recommended for acceptance Issue Letter 3498 (SC/CG) or contact the taxpayer by telephone to amend the offer to the acceptable amount. If the taxpayer response does not change the case determination, issue the rejection letter using the option to increase paragraph.
    The analysis shows the taxpayer can fully pay the tax through liquidating assets and/or installment payments Issue Letter 3499 (SC/CG) or contact the taxpayer by telephone. If the taxpayer response does not change the case determination, issue the rejection letter using the full pay paragraph.
    The offer amount equals or exceeds the RCP and the offer is otherwise acceptable The acceptance letter should be issued. (See IRM 5.8.8, Acceptance Processing)
    Special circumstances are identified that warrant acceptance for less than the RCP Consider an ETA offer or DCSC. (See IRM 5.8.11, Effective Tax Administration)

5.8.4.7  (09-23-2008)
Initial Action, Follow-Up, and Closing Action Time Frames

  1. Time frames have been set for completing certain tasks associated with an offer investigation. These time frames vary depending on who is assigned the case.

  2. The timely completion of an offer investigation is an organizational priority. As such, unwarranted inactivity gaps are to be avoided. (See IRM 5.8.1.1.6, Timeliness of Offer Investigations, for definitions of timely case processing.)

5.8.4.7.1  (09-23-2008)
Initial Offer Actions

  1. Within 15 calendar days of the date an offer is assigned to an OE in COIC or within 30 calendar days of the date an offer is assigned to an OS, the assigned employee must complete the following actions:

    1. Analyze the new receipt to determine if sufficient information is available to make a decision regarding the merits of the offer.

    2. If additional information is needed from the taxpayer to reach a decision, issue an additional information request, as appropriate.

    3. Where necessary and appropriate, this request should also include verification of the taxpayer's compliance with the current year's ES tax payments and/or current quarter FTD payments. See IRM 5.8.7.2.2.1 for additional information on the calculation and determination of appropriate ES payments.

    4. If the taxpayer failed to make the appropriate amount of the required lump sum cash payment (20% of the offered amount), when requesting additional information you must also request the remainder of the payment.

    5. If enough information is available, prepare a preliminary AET/IET to make a projected resolution to the case or to determine exactly what additional information is needed. This requirement does not apply to those offers determined to meet solely to delay collection criteria. See IRM 5.8.3.19 for additional information.

    6. If no additional information is needed, initiate appropriate follow-up actions to recommend the disposition of the offer.

    7. The initial lien determination should be made and documented.

  2. Prior to the issuance of offer cases to the field, COIC will have made all processability determinations and completed initial internal case building actions. In some cases, no additional information will be needed from the taxpayer to complete the investigations. In these situations, the next appropriate action(s) should be scheduled in a manner that ensures the timely resolution of the case.

  3. In situations where the Field OS are not co-located with the group manager, an additional 5 days will be allowed from the assignment date to complete the initial case actions. This time accounts for the need to transship the case files to remote locations. Situations where this transit time routinely takes more than 5 days to accomplish should be reported to the Area OIC Coordinator to determine the cause for the delays.

  4. Generally, the AOIC assignment date will be the assignment date of record.

  5. Prior to the income and expense analysis of an individual offer where the taxpayer submitted a Form 656-A certification, the OI will determine whether the household income and family unit size at the time the offer was submitted supported the decision not to pay the application fee or the required TIPRA payment. If the OI concludes that the income for the family size exceeds the levels for which a Form 656-A certification was allowed (i.e. the taxpayer should have paid the application fee and/or the required TIPRA payment), contact the taxpayer and request the required initial payment and application fee be submitted. If the taxpayer does not respond in a reasonable amount of time, the offer will be returned. Return the offer using letter code "RET-AB" for failure to pay the application fee and required initial TIPRA payment.

    Note:

    A definition of household is: "The entire household includes spouse, domestic partner, significant other, children, and others that contribute to the household."

  6. If the taxpayer submitted the Form 656-A, the required TIPRA payment, and the application fee, treat the payments as a deposit. If during the investigation, the OI determines the taxpayer does not qualify for the waiver, the taxpayer will be notified. Request MOIC move the money to the taxpayer's liability(s), and continue working the offer. If the offer was a periodic payment offer, discuss the requirements with the taxpayer, and request the taxpayer to make all payments from the date of submission to the date of discovery. The taxpayer must also make payments through the remainder of the investigation. Allow a reasonable amount of time for the taxpayer to submit the funds. If the taxpayer fails to make up the payments, or cannot make the required TIPRA payments, return the offer, unless special circumstances prohibit the taxpayer to submit the funds. See IRM 5.8.3.5 for more information.

    Note:

    A definition of household is: The entire household includes spouse, domestic partner, significant other, children, and others that contribute to the household.

  7. If additional information is required to make a decision, contact the taxpayer or POA to request the additional supporting documents. If it is determined no information is necessary, issue a decision letter.

  8. If the taxpayer or their representative requests an extension of time to comply with the request for additional information, a reasonable amount of time should be granted. Generally, a minimum of 15 and a maximum of 30 calendar days should be allowed. If the taxpayer of representative requests additional time beyond the 30 calendar days, the additional time should be allowed. However, if it appears that the representative or taxpayer are delaying the progress of the offer investigation or if the taxpayer or representative fail to meet the deadline, initiate the "No Reply" procedures as defined in IRM 5.8.3.17. Document the ICS or AOIC history indicating the new deadline for the response.

  9. Cases transferred from one Area office to another should have an AOIC transfer letter sent advising the taxpayer of the location of the office where the case has been transferred and providing the taxpayer with a local contact telephone number. The transferring office will be responsible for sending the transfer letter.

  10. If assignment to an offer specialist does not or will not take place within 45 days of the transfer:

    • The taxpayer must be contacted (verbally or in writing) and advised of the status of the case and expected assignment date. If the taxpayer is verbally notified, the contact must be documented in the ICS history. If the taxpayer is notified in writing, a copy of the letter must be kept with the offer file.

    • The location of the case at the end of the 45-day period will determine who will contact the taxpayer: the drop point group or the assigned group

  11. If the request for information is in writing, the correspondence must include:

    1. A list of the specific items/information needed,

    2. A specific deadline for providing the information,

    3. A statement indicating that the offer will be returned without further consideration if all the information is not provided,

    4. The name, phone number, and employee number of the investigating employee,

    5. A statement regarding enclosure of Publication 1 and 594,

    6. A statement indicating that a NFTL will be filed if a decision has been made to file a lien.

    7. A statement addressing any potential special circumstances (e.g. ETA or DCSC),

    8. Rubber-stamp or otherwise enter on all outgoing envelopes containing requests for additional information "URGENT — TIME SENSITIVE" .

  12. If the request for information is in person (e.g. by telephone, office, or field visit) the contact must include the following information:

    1. Verify receipt of Pub. 1 and Pub. 594. If the first conversation is with the POA, verify that the taxpayer has received these publications. If the response from either the taxpayer or the POA is yes, ask if there are any questions and answer any questions they may have to ensure there is a clear understanding of their rights. If they have not been received, offer to either explain their rights before proceeding or re-mail the publications to the taxpayer and postpone conversation until they have been received and read.

    2. Address and document any potential special circumstances (e.g. ETA or DCSC) identified during the initial review of documents submitted with the offer.

  13. Cases transferred from one office to another should have an AOIC transfer letter sent within 15 calendar days of the transfer advising the taxpayer of the location of the office where the case has been transferred and providing the taxpayer with a local contact telephone number. Since cases are often reassigned to a POD once received in the Area office drop point, the receiving office will be responsible for sending the transfer letter. If the case cannot be assigned immediately, the taxpayer should be advised of the anticipated date of assignment to an OS. A follow up letter should be sent to the taxpayer advising of any delay in assignment if the case is not assigned by the date specified in the original letter.

  14. To eliminate the potential for misrouted cases, the procedures outlined in IRM 3.13.62, Media Transport and Control, will be followed.

    1. The originating office responsible for shipment of the offer files will follow-up within 30 days from the shipment date if the acknowledgment copy of the Form 3210, Document Transmittal, is not received.

    2. If all the cases listed on the Form 3210 are not included in the shipment, the receiving office is responsible for notifying the originating office within 10 days of receipt of the Form 3210.

    3. Any and all discrepancies will be resolved within 30 days.

5.8.4.7.2  (09-23-2008)
Periodic Payments Required With Offer in Compromise Submission

  1. IRC Section 7122(c), as amended by the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), requires OIC's submitted on or after July 17, 2006 (and not subject to waiver with respect to low income taxpayers or offers submitted based solely on DATL) must be accompanied by partial payment of the proposed offer amount. These payments are applied to the tax liabilities included on the offer and are in addition to any application fee imposed. See IRM 5.8.3 for additional information.

  2. The form of these partial payment depends on the taxpayer’s proposed offer and its terms.

    1. A lump sum cash offer (defined as payable in five or fewer payments) must be accompanied by a payment of 20% of the offered amount.

    2. A periodic payment (defined as payable in six or more installments) must be accompanied by payment of the first proposed installment, and additional payments must be paid in accordance with the taxpayer’s proposed offer terms while the Service evaluates the offer.

    3. For short term periodic payment offers, if the taxpayer qualifies for the Form 656-A waiver, the taxpayer is not required to pay the application fee, or TIPRA payment(s), including any future payments unless the offer is accepted. If the offer is accepted, the 24 month timeframe for paying the accepted offer amount will start on the date of written notice of acceptance. At that time, the taxpayer will begin making the payments in accordance to the terms of the accepted offer.

  3. While a periodic payment offer is being evaluated by the Service, the taxpayer must make subsequent proposed payments as they become due. There is no requirement that the payments be made monthly or in equal amounts.

  4. The Service is not bound by either the offer amount or the terms. The offer investigator may determine that the proposed offer amount is too low or the payment terms too protracted to recommend acceptance. In this situation, the offer investigator may advise the taxpayer that a larger amount or different terms would likely be recommended for acceptance.

  5. Taxpayers who qualify for waiver of the $150 application fee based on their income level at the time they submit an offer are also exempt from making the required TIPRA payment(s). If during the investigation it is discovered that the taxpayer does not qualify for the waiver, contact the taxpayer and request the required payment(s) and the application fee. Allow a reasonable amount of time for the taxpayer to submit the payment(s) and fee. If the taxpayer fails to submit the payment and the fee, return the offer. However, if the taxpayer submitted the application fee, and TIPRA payment in addition to the Form 656-A Waiver, and it is discovered that the taxpayer doe not qualify for the waiver, the offer investigator will:

    • Request the money be moved to the appropriate account and/or liability(s), and

    • Continue working the offer

  6. If the taxpayer submitted a periodic payment offer, the offer investigator will request that the taxpayer make up the past due payments from the date of submission to the date of discovery. A reasonable amount of time must be allowed for the taxpayer to send the requested funds. The taxpayer will then be required to make payments in accordance to the terms of the offer when submitted during the remainder of the investigation. If the taxpayer cannot or fails to make the payments by the deadline, the offer will be returned without further consideration.

  7. Taxpayers may designate how the required TIPRA payments are to be applied to the taxpayer's liabilities. The request for designation must be made in writing when the offer is submitted (in the case of the initial partial payments) or when the payment is made (in the case of subsequent installment payments made for a periodic payment offer). Once a designation of payment is made, it cannot be changed at a later time. The written payment designation must clearly explain how these payments are to be applied to specific tax periods or liabilities (e.g., income taxes, employment taxes, trust fund portions of employment or excise taxes, etc.). This written payment designation must become part of, and remain with, the offer case file.

  8. In the absence of any written payment designation by the taxpayer when the offer was submitted or when the payment is made, the Service will apply the payments in the best interest of the Government.

  9. COIC will process the required initial TIPRA payment accompanying periodic payment offers prior to transferring an offer to an OI. For offers submitted by corporations to compromise trust fund taxes, COIC will apply the initial payment(s) to the tax liability with the earliest unexpired CSED. OI's assigned to investigate these offers are responsible for transferring the partial payment(s), if necessary, in the best interest of the government as defined in 5.8.4.7.2.1 below.

5.8.4.7.2.1  (09-23-2008)
Periodic Payments Made During Offer Investigation

  1. It is the responsibility of the OI assigned the case to ensure that taxpayers make the proposed installments during the offer investigation. In addition, the OI must also ensure that required additional amounts are paid if the taxpayer submits a revised offer reflecting a larger proposed offer amount and/or changes the offer from a periodic payment to a lump sum cash offer.

  2. If a subsequent payment is received by an OI with a Form 656-PPV, forward the payment with the Form 656-PPV to the appropriate COIC address shown on the form.

  3. Upon receipt of a subsequent payment received by the COIC site while the offer is assigned to an OI, COIC must annotate the AOIC history with the following information:

    • Date(s) of receipt

    • Amount of the payment(s)

    • Location (MFT and period) applied

  4. It is the responsibility of the OI to check the AOIC history and/or IDRS for verification of posted or pending payments that may have been received in the COIC site.

  5. If a subsequent payment is received in the COIC site while the offer is assigned to an OI, COIC will annotate the AOIC history with:

    • The date(s) of receipt,

    • amount of the payment(s), and

    • location (MFT and period) applied

  6. It will be the responsibility of the OI to check AOIC and/or IDRS for verification of posted or pending payments that may have been received in the COIC site.

  7. If a subsequent payment is received by the OI, the OI will use Form 3244 to:

    1. Apply the payment(s) directly to the tax liability in accordance with the taxpayer’s written payment designation, if any, submitted with the offer.

    2. If no written payment designation was submitted with the offer, apply the payment(s) directly to a tax liability to the best interest of the Government.

    1. For offers submitted by taxpayers other than corporations, apply the payment(s) to the tax liability(ies) with the earliest unexpired CSED(s).

    2. For offers submitted from corporations involving trust fund taxes, apply payment(s) in the following descending order: 1) To all Forms 1120, 940, and any other non-trust fund liabilities (in earliest unexpired CSED order), if any; and 2) To the following unpaid portions of all Form 941 periods (in earliest unexpired CSED order).

      If neither 1) or 2) above are applicable, apply in the following order:

      • Non-trust fund portion of tax (employer’s share of FICA)

      • Assessed lien fees and collection costs

      • Assessed penalty

      • Assessed interest

      • Accrued penalty to date of payment

      • Accrued interest to date of payment

    3. For offers submitted by taxpayers other than corporations, apply the payment(s) to the tax liability(ies) with the earliest unexpired CSED(s).

    4. For offers submitted from corporations involving trust fund taxes, apply payment(s) in the following descending order: 1) To all Forms 1120, 940, and any other non-trust fund liabilities (in earliest unexpired CSED order), if any; and 2) To the following unpaid portions of all Form 941 periods (in earliest unexpired CSED order).

      If neither 1) or 2) above are applicable, apply in the following order:

      • Non-trust fund portion of tax (employer's share of FICA)

      • Assessed lien fees and collection costs

      • Assessed penalty

      • Assessed interest

      • Accrued penalty to date of payment

      • Accrued interest to date of payment

    5. To the unpaid trust fund portion of the Form 941 (employee's and withholding share of FICA) in the earliest unexpired CSED order.

  8. Annotate the AOIC history with the amount(s) and date(s) of receipt.

    Note:

    Use DPC 02 when posting subsequent periodic offer payments specified to the trust fund portion when the offer was submitted by a corporate taxpayer. In all other situations use DPC 35.

  9. If the taxpayer fails to make a proposed installment for a periodic payment offer, the OI will allow one opportunity to pay the missing amount(s). Attempt to contact the taxpayer by telephone, and allow 15 calendar days for the taxpayer to submit the payment(s). If the taxpayer or the representative cannot be reached by telephone, issue an additional information letter to notify of the need to make the payment(s) and allow 15 calendar days from the date of the letter to submit the payment(s).

    1. If the taxpayer submits the payment(s) within 30 calendar days from the date of the letter (allowing 15 calendar days for mail), continue the offer investigation. In some locations, it may be necessary to allow additional time for the taxpayer to submit the payments. Document the ICS or AOIC history with the reason for the delay.

    2. If the taxpayer fails to submit the payment or request an extension of time within 30 calendar days from the date of the letter, close the offer as a mandatory withdrawal, using the appropriate withdrawal letter. Document the ICS or AOIC history.

    Note:

    Taxpayers will be afforded an opportunity to make up only one missed proposed payment for a periodic payment offer, including any amended offers, unless special circumstances exist.

  10. The proposed offer amounts and terms submitted by a taxpayer dictate the required partial offer payments. The Service is not bound by those same terms in determining an acceptable offer. Therefore, OI's may negotiate different offer terms, when appropriate.

  11. During evaluation of an offer, the offer investigator may determine that the proposed offer is too low or the payment terms too protracted to recommend acceptance. In this situation, the OI will advise the taxpayer that a larger amount or different terms would likely be recommended for acceptance. If the taxpayer submits a revised offer reflecting a larger proposed offer amount or changing the terms, one or more additional payments may be required. The taxpayer will be given credit for partial payments already made with respect to the original offer.

    If… And… Then…
    Original offer was a lump sum cash offer Revised offer is a lump sum with a greater proposed offer amount Taxpayer must pay 20% of the revised amount, less the partial payment made with the original offer, with the revised OIC
    Original offer was a periodic payment Revised offer is a lump sum cash Taxpayer must pay 20% of revised offer amount, less any installment payments already paid toward the original offer, with the revised OIC
    Original offer was periodic payment Revised offer is periodic payment with greater proposed offer amount and/or different proposed installment amounts or schedule Taxpayer must make the initial proposed installment in accordance with the terms of the revised offer, and continue to make the proposed installments during evaluation of the OIC
    Original offer was lump sum cash offer Revised offer is periodic payment with greater proposed offer amount Taxpayer must make the initial proposed installment in accordance with the terms of the revised offer, and continue to make the proposed installments during evaluation of the revised OIC

  12. IRC Section § 7122(c), as amended by the TIPRA, requires that offers in compromise submitted on or after July 17, 2006 (and not subject to waiver with respect to low income taxpayers or offers submitted based solely on DATL) must be accompanied by partial payment of the proposed offer amount.

  13. If the taxpayer submitting a revised or amended offer does not make the additional required payment(s), the OI will return the offer as a processable return using the appropriate AOIC generated letter.

    Note:

    Cases worked prior to July 21, 2006 will be worked under the criteria defined in IRM 5.8 (revised 9/1/2005). No TIPRA payment requirements will apply to amended offers on those cases. TIPRA requirements only apply to those offers with an "IRS Received Date" of July 22, 2006 and after.

  14. If the taxpayer fails to submit the revised offer, prepare the rejection letter.

  15. For dishonored partial payments required with submission of offers, see IRM 5.8.3.6 for appropriate procedures.

5.8.4.7.3  (09-23-2008)
Follow-up Actions

  1. In order to ensure timely case processing, all in-process offers must have follow-up dates scheduled for the next appropriate action.

  2. Throughout the investigation, the scheduling of timely follow-up actions should be reasonable and appropriate, based on the facts of the case. In order to be considered timely, follow-up actions should be significant actions that can reasonably be expected to move the offer investigation toward resolution. Generally, follow-up actions should occur:

    1. No later than 15 calendar days after a deadline for taxpayer action has passed without an adequate response.

    2. No later than 15 calendar days of the receipt of additional information.

    3. Within 30 calendar days in situations where no contact has been established with the taxpayer or no deadline has been given.

    Exception:

    See IRM 5.8.4.7.2.1 (7), for an exception to the 15 calendar day requirement in reference to a missed TIPRA periodic offer payment.

  3. Follow-up actions may include:

    • Recommending acceptance or rejection if the information received is sufficient to make a decision regarding the offer.

    • Recommending the case for closure when the taxpayer has clearly failed to provide the requested documents or information.

    • Personal contact when the taxpayer has made an attempt to comply with the requested documentation but the provided information is incomplete, or needs clarification.

5.8.4.7.4  (09-23-2008)
Case Recommendations and Closing Actions

  1. Case Recommendations

    1. OE's in COIC must submit all appropriate recommendation reports (i.e., Forms 1271/7249) within 10 calendar days from the date of the documented case decision.

    2. OS's must submit all appropriate recommendation reports within 15 calendar days from the date of the documented case decision.

  2. Closing Actions – Case must be submitted for closing actions (i.e. - dating/mailing of letters, closing on AOIC, ICS, etc.) within the defined 10 to 15 calendar days as described above.

5.8.4.8  (09-23-2008)
Documentation

  1. Documentation must include but is not limited to:

    • The basis of the processability determination

    • Plans of action

    • Case actions

    • Requests for information/documentation

    • Receipt of requested information

    • Conversations with taxpayers or representatives

    • Results of internal information analysis

    • Special issues or circumstances

    • Financial analysis, if applicable

    • Case decisions

    • The source of the funds, if the periodic payment amount is greater than the taxpayer's ability to pay

    Note:

    Do not repeat information already present on AOIC screens.

  2. Documentation should include evaluation of the income, allowable expenses, asset values, and encumbrances. It should support and define differences and verification of the assets and expenses, including reasons for disallowance of income and expenses.

  3. COIC employees will use AOIC to document case actions.

  4. Field compliance employees will use ICS to document actions. When ICS is used to record documentation, a closing summary history must be placed on AOIC prior to closing the case, indicating the basis for the closure and a statement that the complete history is available on ICS.

  5. Documentation should be recorded the day the action occurs or as soon as practical thereafter.

5.8.4.9  (09-23-2008)
Notice of Federal Tax Lien Filing

  1. It is the responsibility of the employee to safeguard the government's interest and taxpayer rights. Employees must exercise judgment in deciding whether or not a Notice of Federal Tax Lien (NFTL) should be filed. See IRM 5.12, Federal Tax Liens, for further discussion on the NFTL.

  2. A NFTL filing determination must be made and documented on all assigned cases as part of the initial offer actions defined in IRM 5.8.4.7.1 above.

    Example:

    Your initial case analysis reveals that the taxpayer has an interest in real property and no indication that a NFTL is filed. Or, your initial case analysis indicates that there are no NFTL's filed and the taxpayer threatens to file bankruptcy if we do not accept the offer. You should immediately file the lien to safeguard the governments interest.

  3. The initial review of any case must include an analysis of whether a NFTL has been correctly filed on all tax modules owing, is filed in the correct jurisdiction, and whether or not any filed liens should be re-filed. If analysis indicates a lien was erroneously allowed to self-release, appropriate action must be taken to correct the problem.

  4. A NFTL will generally be filed whenever the unpaid balance of assessments exceeds $5,000, and an offer is recommended for rejection or acceptance for the following:

    1. Lump sum cash offer (20%), and five or fewer installments paid in six months or more

    2. Short term periodic payment offer

    3. deferred periodic payment offers

    Example:

    The taxpayer submits an offer for $10,000. He pays 20% or $2,000. The remaining balance is $8,000. If the taxpayer offers to pay $2,000 12 months after the date of acceptance, and $2,000 every 12 months thereafter until paid in full, a lien should be filed if it meets the IRM NFTL lien filing requirements as stated above.

  5. Circumstances warranting non-filing of a NFTL in the above situations should be clearly documented on AOIC or ICS.

  6. A lien will generally not be filed on accepted offers when the offer amount will be paid in 5 months or less.

    Example:

    The taxpayer submits an offer for $10,000. He pays 20% or $2,000. The remaining balance is $8,000. If the taxpayer offers to pay the $8,000 within 5 months from the date of acceptance, a lien will not be filed.

  7. In those cases where an offer is being investigated and the taxpayer files a request for a CDP during the investigation, the case then becomes the jurisdiction of Appeals. If a determination to accept the offer has been made, the OI should contact Appeals to recommend the taxpayer withdraw the CDP request. If a determination to reject the offer has been made, the offer file should be forwarded to the Appeals Officer handling the CDP hearing before sending any rejection letters. Delete the offer from AOIC.

    Exception:

    See IRM 5.8.4.12.4 for CDP cases meeting COIC criteria and retained in COIC for processing and preliminary decision.

    If… Then…
    No lien has been filed and a decision is made to not file a lien until the conclusion of the investigation The case file should be documented when a lien determination was made and it should also include the basis for the decision to withhold filing. An additional determination will be required at the conclusion of the investigation. Generally, a lien will be filed if the offer is:

    • accepted as a deferred payment offer,

    • rejected

    • returned

    Caution:

    Remember that an attempt must be made to contact the TP by phone, in person, or by letter to advise of the filing before requesting the lien. AOIC combo and rejection letters satisfy the notification requirement.

    A determination is made to file a lien immediately Ensure that an attempt to notify the TP of the proposed filing (by phone, letter, or in person) has been made and documented before requesting the lien be filed. Provide the required appeal rights per IRM 5.12, Federal Tax Liens, if the taxpayer objects to the filing. If the lien is filed and a CDP request is received process it immediately following guidelines in IRM 5.1.9, Collection Appeal Rights.
    Liens were previously filed but in an incorrect jurisdiction Determine whether to file a NFTL in the correct jurisdiction or withhold filing until the conclusion of the investigation. Follow instructions above based on your decision. If the decision is made to withhold the filing until the conclusion of the investigation, an additional determination must be made at that time.
    Liens were filed but have expired Follow instructions in IRM 5.12, Federal Tax Liens.
    Liens were filed and are currently in the refiled period Ensure that liens are correctly refiled in all required jurisdictions.
    An offer where the unpaid balance of assessment is $5,000 or more and is being rejected or accepted with deferred payment terms A lien will normally be filed on these cases. Circumstances warranting non-filing must be documented in case history.

5.8.4.10  (09-23-2008)
Combination Offers

  1. With the release of the Form 656–L, Offer in Compromise (Doubt as to Liability), which is for DATC only, and the 2007 Form 656 there will no longer be combination offers for consideration for DATL and DATC issues.

  2. Combination offers submitted prior to the 2007 revision of Form 656 will be worked under procedures defined in IRM 5.8.4.10 (revised 09/01/2005).

5.8.4.11  (09-23-2008)
Responsibility of Offer Specialist and Field Revenue Officers

  1. OI's are responsible for working only offer aspects of an investigation. During the offer process employees may discover collection issues that require traditional RO investigation. Generally, if these issues are initially identified by an OE in COIC, the case will be forwarded to a field OS, where the issues will be confirmed and if appropriate, action taken to refer the case to a traditional RO. Some of the issues that may be identified and the way they should be processed are:

    Issue Procedure
    Transferee, Nominee or Alter Ego When these issues arise during an offer investigation, OS should establish a valuation for the involved asset or income stream. The OS should include the value in computing the RCP but not actually complete the administrative actions required to establish the liability or secure a lien against the third party. If the value of the involved asset or income stream will be obtained through an accepted offer, that fact should be clearly documented and any transferee, nominee or alter ego remedy not pursued through administrative or judicial action. If the offer is rejected or moving