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Part 8. Appeals

Chapter 23. Offers in Compromise

Section 2. Receipt and Control of Non-CDP Offers

8.23.2  Receipt and Control of Non-CDP Offers

8.23.2.1  (08-28-2009)
Receipt

  1. This section provides guidance for the receipt and control of non-CDP offers in compromise (OICs). Procedures for OICs received as an alternative to collection in a Collection Due Process (CDP) or equivalent hearing (EH) case are found in IRM 8.22.2.

  2. Field Collection, Field Examination and the Centralized Offer in Compromise (COIC) sites forward taxpayer appeals of rejected offers. The campus Appeals offices in Brookhaven and Memphis work the bulk of the cases coming out of the COIC sites. Cases worked by field compliance offices, the most complex COIC offers, and cases where the taxpayer wants to meet with Appeals in person are generally assigned to the Appeals office that covers the taxpayer's location. Appeals Management will occasionally assign or re-assign cases to other areas as part of effectively managing inventory levels.

  3. The Appeals Team Manager or their designee will generally issue the Uniform Acknowledgement Letter to the taxpayer within 30 days from the date of receipt by Appeals. Enclose Publication 4227, Overview of Appeals Process, and Publication 4167, Appeals-Introduction to Alternative Dispute Resolution. The purpose of this acknowledgement letter is to:

    • Advise the taxpayer of receipt of the case in Appeals

    • Provide the Appeals contact person's name and telephone number

    • Explain what the taxpayer can expect from Appeals during the Appeals process, including information on opportunities to meet with an Appeals Officer or Settlement Officer (AO/SO) in person

    • Explain what Appeals generally expects from the taxpayer during the Appeals process

    Note:

    Appeals campus sites in Brookhaven and Memphis should not enclose Publication 4167 with the Uniform Acknowledgement Letter because OICs considered at an Appeals campus site are not presently eligible for alternative dispute resolution processes.

  4. See IRM 8.23.6, OIC Processing and Closing Procedures, for initial case receipt guidance for Appeals Processing Section (APS) personnel.

8.23.2.2  (08-28-2009)
Assignment of OIC Case

  1. As previously indicated, Appeals receives rejected OIC cases from a variety of sources. Assignments should be based upon case complexity and the experience level of the employee. Appeals must also strive to accommodate a taxpayer's reasonable request for an in-person conference. Taxpayers should make clear their desire for an in-person hearing before substantive negotiations begin. If the complexity of a certain case extends beyond the technical skills available in a particular location, the case should be re-assigned.

  2. OICs rejected by a COIC site using "Obvious Full Pay" criteria will generally require less technical expertise. See IRM 8.23.3.9, Centralized Offer in Compromise and "Obvious Full Pay" Offers, for guidance on working these types of cases.

  3. OICs rejected by a COIC site but not based upon "Obvious Full Pay" criteria can generally be resolved through written or telephone contact. The Settlement Officer working these cases must be knowledgeable with this IRM text as well as with IRM 5.8, Offer in Compromise, IRM 5.15, Financial Analysis, IRM 5.14, Installment Agreements, and IRM 5.16, Currently Not Collectible.

  4. OICs rejected by Collection Field OIC groups are generally more complex and require more detailed financial analysis skills, familiarity with asset valuation techniques, and sound negotiation and communication skills. Appeals and Settlement Officers working these more complex cases must be well versed in the aforementioned IRM sections and have an in-depth understanding of

    • the impact and priority of the federal tax lien,

    • the impact of state and local statutes on asset ownership, valuation and equities,

    • enforced collection actions such as levy and administrative seizure and sale,

    • judicial actions such as a suit to foreclose a federal tax lien or reduce a tax claim to a judgment, and

    • Trust Fund Recovery Penalty (TFRP) liability issues.

  5. OICs filed on the basis of Effective Tax Administration (ETA) or Doubt as to Collectibility with Special Circumstances (DCSC) require a level of experience commensurate with the facts of the case as described above.

  6. The OIC case grading matrix is found in IRM 1.4.28, Organization, Finance, and Management, Resource Guide for Managers, Appeals Managers Procedures.

8.23.2.2.1  (08-28-2009)
Transfer of OIC Cases

  1. Except as outlined in this section, there is no separate Appeals policy for OIC cases and face-to-face hearings. The general face-to-face hearing policies and procedures for Appeals found in IRM 8.6.1.3 and IRM 8.20.6.9 apply to appealed non-CDP OIC cases as well. If Appeals cannot resolve a case easily and it requires a face-to-face discussion, the case may be transferred to the Appeals office nearest to the taxpayer. To reduce the length of time a case is in Appeals, it is important to initiate the transfer of appropriate cases as quickly in the overall Appeals process as practical.

  2. Situations occur where a taxpayer will request to have a case transferred to the Appeals office closest to the taxpayer after engaging in substantive negotiations with Appeals. This often occurs when the taxpayer believes an adverse decision is likely or imminent. It is important to point out to the taxpayer in both the acknowledgement letter and substantive contact letter or during an initial telephone contact that he/she may ask to meet with someone from Appeals in person, but that the decision to do so should be made before meaningful negotiations begin and must be made well in advance of an imminent decision. Appeals will not transfer a case simply because the taxpayer disagrees with its determination.

    Note:

    Appeals began post-Appeals mediation and arbitration test programs on December 1, 2008 in eight test locations. The alternative dispute resolution (ADR) programs are designed to supplement and not replace the standard Appeals process. Appeals' primary emphasis both inside and outside of the test programs is on the standard Appeals process and not on ADR. Cases in which the taxpayer and Appeals have already engaged in substantive negotiations will not be transferred for ADR reasons because in order to properly assess the overall effectiveness of ADR during the test, Appeals must maintain its ability to assign work in a manner that most benefits the standard Appeals process.

  3. Prior to transferring a case, conduct a preliminary review to avoid unnecessary delays. If the review shows that the taxpayer is not in compliance with filing or payment requirements or the entire liability is clearly collectible and the taxpayer presents no special circumstances, the offer's rejection may be sustained without transfer.

  4. If acceptance of the offer is possible and the Appeals office with the case cannot resolve it easily, transfer the case to the Appeals office nearest to the taxpayer.

  5. If the taxpayer asks to meet face-to-face, input the necessary ACDS CARAT codes.

  6. Action Code TF:

    1. Input the TF Action Code on the date the taxpayer's request to have the case transferred for a face-to-face conference is either approved or denied.

  7. Sub-Action Codes for Approved Transfers:

    1. Use one of the following three Sub-Action Codes if the transfer request is approved for a face-to-face conference:

      Sub-Action Code Definition
      AT Transfer or reassignment was approved to help the taxpayer better understand the process even though the taxpayer would not otherwise qualify for a face-to-face conference.
      ET Transfer or reassignment was approved to an office closest to taxpayer's residence.
      OT Transfer or reassignment was approved to accommodate the taxpayer at an office closer to their employer or school.

  8. One of the following three Sub-Action Codes must be used when the transfer request is denied for a face-to-face conference.

    Sub-Action Code Definition
    DC Transfer or reassignment was denied due to compliance issues.
    DF Transfer or reassignment was denied because taxpayer raised only frivolous issues.
    DO Transfer or reassignment was denied for other reasons.

  9. The definitions for these codes are also available on the ACDS Utilities menu under CARATS Action/Sub-action codes.

8.23.2.3  (08-28-2009)
Initial Case Review and Statute Controls

  1. This section provides procedures for preliminary case review to make sure the offer is ready for Appeals' consideration. If the offer was sent to Appeals prematurely, it must be returned to the referring office. Follow the procedures in IRM 8.23.3 after determining the case is ready for Appeals' consideration.

    Note:

    Most premature referrals should generally be returned to the originating Compliance office within 45 days of Appeals' receipt of the case. See IRM 8.23.2.3.1 for details on premature referral issues including those that must be sent back even after 45 days due to jurisdictional issues.

  2. Appeals must screen new OIC receipts to make sure:

    • the appeal was timely (see below)

    • TC 480 was input to all periods

    • periods are in Master File (MF) status 71, as required

      Note:

      MF status 71 is not automatically input in all instances. See IRM 5.8.3.10.

    • there are no statute issues (see below), and

    • if there is an open TIPRA statute, the WUNO contains the proper statute controls, meaning both ACDS Statute Code = 'TIPRA' and the correct 24-month statute expiration date (see the table in paragraph (6) below).

  3. Non-CDP OIC receipts must be checked to make sure the appeal was timely. A taxpayer has 30 calendar days from the date of the rejection letter to request an administrative Appeals hearing. If the appeal was not timely, it must be returned as a premature referral because Appeals does not have the jurisdiction to consider the appeal. See IRM 8.23.2.3.1 for specific instructions on determining the timeliness of the appeal.

  4. Taxpayers occasionally submit a written appeal before the offer is rejected. IRC 7122(e) states there must be an independent administrative review of any rejection of an OIC before such rejection is communicated to the taxpayer and Treasury Regulation 301.7122-1(f)(1) provides that an offer in compromise has not been rejected until IRS issues a written notice to the taxpayer or his representative advising of:

    • The rejection

    • The reason(s) for rejection

    • The right to an appeal

    See IRM 8.23.2.3.1 for information on what to do if the taxpayer's appeal pre-dates the actual rejection of the offer.

  5. Document the following in the case activity record:

    • Verification of timely appeal

    • Statute and statute control verification

    • TC 480 verification

    • All ACDS correction requests

  6. Per IRC 7122(f) and Notice 2006-68, an OIC shall be deemed accepted if it is not rejected, returned or withdrawn before the date which is 24 months after the date of the submission of the offer. Any period during which any tax liability that is the subject of the OIC is in dispute in any judicial proceeding shall not be taken into account in determining the expiration of the 24-month period. The date of submission of an offer for purposes of section 7122(f) is the date on which the offer is received by the Service.

    Note:

    Except for suspension of the 24-month period during which any tax liability that is the subject of the OIC is in dispute in any judicial proceeding, there are no means to extend or suspend the 24-month TIPRA period. The 24-month period includes whatever time a case may be pending in Counsel awaiting their opinion on an acceptance recommendation. There is no statutory basis for the taxpayer and the Service to enter into any sort of agreement to extend or suspend the 24-month period.

  7. There are three instances where Appeals receives an OIC without a decision (reject, return, withdrawal) first being made by a Compliance function and thus have an open TIPRA statute:

    • OIC submitted as an alternative to collection in a CDP or EH case

    • OIC based upon Doubt as to Liability (DATL) where Appeals originally determined the liability (e.g., income tax, Trust Fund Recovery Penalty, etc.)

    • combination offer based upon both Doubt as to Collectibility (DATC) and DATL submitted on the July 2004 revision of Form 656 and where Appeals originally determined the liability, in which case Collection should have determined the collectibility aspect of the offer must be rejected, but no similar determination was made by Exam concerning the liability aspect of the offer (these should be rare because the Service has utilized a Form 656–L since January of 2006, and a Form 656 without DATL as an available option since February of 2007, but there are still some combination offers out there that were submitted after July 16, 2006)

      Note:

      See IRM 8.23.2.3.1 for criteria before returning any DATL offer as a premature referral.

  8. Use the following table to check for open TIPRA statutes:

    STEP QUESTION If YES If NO
    One Was a formal rejection letter issued by either Collection or Examination? The 24-month TIPRA period under IRC 7122(f) does not apply and no further action is needed. Any ACDS Statute Code 'TIPRA’ input onto the WUNO should be removed and replaced by Statute Code ‘SUSP’. Steps 2 – 5 do not apply. Proceed to Step Two
    Two Was ACDS Statute Code ‘TIPRA' input onto the WUNO? Proceed to Step Three Submit a request to APS to have Statute Code ‘TIPRA’ input and be sure to use the proper date stamped on the original Form 656 plus two years as the statute date. Proceed to Step Three.
    Three If ACDS Statute Code ‘TIPRA’ was input onto the WUNO, is the corresponding statute date the date stamped on the originally submitted Form 656 plus two years? The Statute Code and date are accurate - proceed to Step Four Submit a request to APS to have the statute date changed to the proper date and proceed to Step Four
    Four Was the offer submitted as part of a CDP or EH case? Proceed to Step Five The case must be a Doubt as to Liability offer in which Appeals determined the original liability. Make sure Steps Two and Three above are done and double check the WUNO to make sure the ‘TIPRA’ Statute Code with the proper statute date are present. Step Five does not apply.
    Five If the OIC is part of a CDP/EH case, was ACDS Feature Code ‘DP’ input onto both the CDP/EH and OIC WUNOs? All necessary actions are done and the OIC WUNO will show up on a Statute Expiration Report and/or an Ad Hoc report Submit a request to APS to have Feature Code ‘DP’ added to both the CDP/EH and OIC WUNOs

  9. Cases identified with an open TIPRA statute must have the proper ACDS statute controls on the OIC WUNO.

  10. Cases with an open TIPRA statute are subject to the same back-end processing time frames as listed in IRM 8.21.3.1.7 and IRM 8.21.4.2, meaning:

    1. written concurrence from the ATM is required to keep the OIC case open beyond 120 days remaining on the 24-month TIPRA statute period, and

    2. the Appeals Officer or Settlement Officer is responsible to ensure the OIC case is presented to APS for closing with at least 90 days remaining before expiration of the 24-month TIPRA statute period.

      Note:

      The 24-month TIPRA statute period under IRC 7122(f) includes whatever time a case may be pending in Counsel awaiting their opinion on an acceptance recommendation. The AO/SO is responsible to make sure the case is presented to Counsel for review with a sufficient amount of time remaining to meet the requirement of having the case presented to APS for closing with at least 90 days remaining before expiration of the 24-month TIPRA statute period.

  11. Various types of offers or offers with specific issues are assigned unique ACDS feature codes. If the following case types or issues are present, check the OIC WUNO to make sure reflects the appropriate ACDS feature code:

    • DO = Potential default case on previously accepted offer

    • DP = OIC that's part of a related CDP or EH case (same 'DP' feature code should also be on the CDP/EH WUNO - see IRM 8.22.2.4.7.4)

    • ETA = Effective Tax Administration offer

    • LI = OIC based upon doubt as to liability

    • SP = OIC based upon doubt as to collectibility with "special circumstances"

  12. If it is determined that the case is ready for Appeals' consideration, send the Uniform Acknowledgement Letter if one was not previously sent and document such in the case activity record.

8.23.2.3.1  (08-28-2009)
Premature Referral Issues

  1. Non-CDP OIC receipts must be checked to make sure the appeal was timely. A taxpayer has 30 calendar days from the date of the rejection letter to request an administrative Appeals hearing. If the appeal was not timely, it must be returned as a premature referral because Appeals does not have the jurisdiction to consider the appeal.

    Note:

    IRC 7502 and IRC 7503 apply to OIC appeals. Per IRC 7502, if the appeal is mailed within 30 calendar days after the date of Compliance's rejection letter, it is a timely appeal. It must be postmarked so that the mailing date can be established. If the postmark is made by a non-U.S. Postal Service system such as a private postage meter stamp or a non-USPS carrier such as UPS or FedEx, Treasury Regulation 301.7502-1(c)(iii)(B) provides that such postmark must be legible and dated on or before the due date and the appeal must be received not later than the time when a letter sent by the same class of mail would ordinarily have been received if it were sent from the same point of origin by the U.S. Post Office on the last day for timely mailing the appeal. Per IRC 7503, if the 30th day falls on a Saturday, Sunday, or legal holiday, a request for appeal is considered timely if mailed on the next business day.

    Note:

    IRC 7508and 7508A postpone certain time-sensitive acts when a person is serving in the armed forces in a combat zone, or there is a Presidentially declared disaster. Rev. Proc. 2007-56 includes the 30-day period for appealing a rejection of an OIC as an act that may be postponed.

  2. Taxpayers occasionally submit a written appeal before the offer is rejected. IRC 7122(e) states there must be an independent administrative review of any rejection of an OIC before such rejection is communicated to the taxpayer and Treasury Regulation 301.7122-1(f)(1) provides that an offer in compromise has not been rejected until IRS issues a written notice to the taxpayer or his representative advising of:

    1. The rejection,

    2. The reason(s) for rejection, and

    3. The right to an appeal.

    If the taxpayer's written appeal pre-dates the actual rejection of the offer, it is not a valid appeal under IRC 7122 and its regulations. Before returning such an offer to SBSE as a premature referral, check the case file and the AOIC eCase and ICS histories to see if the taxpayer submitted a separate and timely written appeal within the prescribed time period. If the only written appeal pre-dates the actual rejection of the offer, the appeal is not timely and it must be returned as a premature referral because Appeals does not have the jurisdiction to consider the appeal.

  3. If the appealed offer is a combination offer based upon both Doubt as to Collectibility (DATC) and Doubt as to Liability (DATL), the offer must be evaluated and rejected by both functions unless Appeals determined the original liability, in which case the offer will be sent directly to Appeals (see IRM 8.23.3.11) after Collection determines the DATC aspect of the offer cannot be accepted. If either Collection or Exam has not yet made a determination on the combination offer and Appeals did not determine the original liability, it must be returned as a premature referral.

    Note:

    Combination offers should now be rare. The Service has utilized a separate Form 656–L, Offer in Compromise (Doubt as to Liability), for DATL offers since January of 2006. Beginning with the February 2007 revision, the Form 656, Offer in Compromise, no longer offers the option of submitting a combination OIC.

  4. If the original liability was previously determined by Appeals, a DATL offer will generally be sent directly to Appeals without first being considered by Exam or Collection. Policy Statement P-8-3, which may be found in IRM 1.2.17.1.3, requires the approval of the Appeals Director of Field Operations or Appeals Director of Technical Services to reconsider a case that was previously closed by Appeals with a signed Form 870-AD, Offer to Waive Restrictions on Assessment and Collection of Tax Deficiency and to Accept Overassessment. If the prior Appeals case was closed with a Form 870-AD, send the case back to the Brookhaven DATL OIC Unit alerting them to the fact that the case still has an open TIPRA statute by using the Form 3210 entitled, "Appeals Returning DATL OIC (870)" , which is available on the Appeals OIC web page. The same applies to a Trust Fund Recovery Penalty case that was previously closed by Appeals with a Form 2751-AD, Trust Fund Recovery Penalty - Offer of Agreement to Assessment and Collection. Use the same templated Form 3210 available on the Appeals web page but change the referenced Form number and title.

    Note:

    While Policy Statement P-8-3 precludes Appeals from being the first to consider the DATL offer if the prior Appeals case was closed with a Form 870-AD or Form 2751-AD, the Policy Statement does not eliminate the taxpayer's statutory right to appeal Exam's or Collection's rejection of the offer. IRC 7122(e)(2) allows "a taxpayer to appeal any rejection of such offer or agreement to the Internal Revenue Service Office of Appeals." If Exam or Collection rejects the DATL offer and the taxpayer appeals, the Appeals Director of Field Operations or Appeals Director of Technical Services approval to consider the appealed offer is not required because IRC 7122(e)(2) trumps Policy Statement P-8-3.

  5. If the prior case was listed on the Appeals Centralized Database System (ACDS) simply because it was a docketed case and it was closed using Closing Code 21, then Appeals did not determine the original liability. The original liability was determined by Exam and was defended in Tax Court by Counsel. The case was added to ACDS only because Appeals provides computational and/or assessment processing support to Counsel on their docketed cases. No one in Appeals was involved in determining whether the taxpayer actually owed the tax. Send such cases back to the Brookhaven DATL unit alerting them to the fact that the case still has an open TIPRA statute by using the Form 3210 entitled, " Appeals Returning DATL OIC (CC21)" , which is available on the Appeals OIC web page.

  6. If the case involves unpaid trust fund tax, the assessment statute expiration date (ASED) is not suspended by the offer in compromise There are two possible instances in which such offers may have been referred to Appeals prematurely:

    1. If the OIC was received by the Service on or before February 4, 2008, Collection should have taken the necessary steps to protect the ASED(s) prior to sending the case to Appeals. See the September 2005 revision of IRMs 5.8.4.13.2 and 5.8.4.13.3. If an ASED in a pre-February 5, 2008 offer was not properly protected by Collection, return the OIC case as a premature referral.

    2. If the OIC was received by the Service after February 4, 2008, the September 2008 revision of IRM 5.8.4.13.2 states the trust fund portion of the taxes must be paid or the TFRP must be assessed against all responsible persons or trust fund package forwarded for assessment. If a post-February 4, 2008 OIC involving trust fund tax is received on appeal and the trust fund portion is not paid, assessed or in the process of being assessed, return the case as a premature referral.

      Exception:

      Do not return the case as a premature referral if Collection has clearly documented either a non-assertion determination or the case being under LEM criteria.

  7. IRM 5.8.7.2.2.1 states that a processable DATC offer must be returned by SBSE when the investigation reveals the taxpayer does not have sufficient estimated tax paid or income tax withheld to cover the current year estimated tax due. This IRM section goes on to provide instructions on who should make estimated tax payments and how much they should make. SBSE is required to give the IMF taxpayer an opportunity to make up the missed estimated tax payment(s) or withholding underpayment before returning the offer. Review the Automated Offer in Compromise (AOIC) case history to determine when the taxpayer's missed estimated tax payment(s) or withholding underpayment occurred in relation to when the SBSE offer investigator submitted the OIC case file with his/her rejection recommendation. If the AOIC history is not in the case file, it is available through the Appeals Centralized Database System (ACDS) eCase. The following table provides instructions for determining whether SBSE neglected to follow significant IRM requirements resulting in the premature referral of an IMF case:

    If... And... Then...
    The taxpayer's failure to make required estimated tax payments or correct a withholding underpayment occurred before the offer was submitted for rejection by the SBSE offer investigator SBSE did not give the taxpayer an opportunity to make up the missed estimated tax payment or correct the withholding underpayment SBSE did not follow IRM 5.8.7.2.2.1 procedures by neglecting to address the estimated tax or withholding underpayment issue with the taxpayer. Send the offer back to SBSE as a premature referral to address the estimated tax or withholding underpayment. If the taxpayer corrects the estimated tax or withholding underpayment, SBSE may send the case back to Appeals to consider the OIC appeal.
    The taxpayer's failure to make required estimated tax payments or correct a withholding underpayment occurred before the offer was submitted for rejection by the SBSE offer investigator SBSE previously gave the taxpayer an opportunity to make up the missed estimated tax payments or correct the withholding underpayment but the taxpayer did not do so SBSE did not follow IRM 5.8.7.2.2.1 procedures and the offer should have been returned by SBSE and not rejected. Send the offer back to SBSE as a premature referral.
    The taxpayer's failure to make required estimated tax payments or correct a withholding underpayment occurred after the offer was submitted for rejection by the SBSE offer investigator The taxpayer is still not in compliance with estimated tax payments or withholding requirements SBSE did not neglect to follow IRM procedures and Appeals must keep the OIC case. Review IRM 5.8.7.2.2.1 and See IRM 8.23.2.4 regarding cases when an IMF taxpayer does not remain in compliance.

    Reminder:

    While it may seem easier in some instances for the Settlement Officer (SO) to keep the non-CDP OIC case and try to get the taxpayer current with estimated tax payments or withholding requirements, tax deposits, or missed proposed periodic OIC payments, such omissions by the taxpayer, if they occurred before the offer was submitted for rejection by the SBSE offer investigator, should be left to SBSE. Addressing the estimated tax or withholding deficiencies, or missed tax deposits or proposed periodic payments that occurred before the offer was submitted for rejection by SBSE forces Appeals to first resolve a compliance issue that had nothing to do with why the offer was rejected. If the compliance problem cannot be resolved, then Appeals must sustain rejection of the taxpayer's offer without ever being able to engage in a dialogue with that taxpayer over the substantive issue(s) in dispute. In a non-CDP offer case, this inherently conflicts with Appeals' central mission and contributes to a perception by some that Appeals is no different than and therefore not independent of SBSE.

  8. IRM 5.8.7.2.2.2 states that a processable DATC offer must be returned by SBSE when the investigation reveals an in-business trust fund (IBTF) taxpayer is required to make employment tax deposits and missed one or more deposits during the quarter in which the offer was submitted or subsequent quarters. SBSE is required to give the IBTF taxpayer one opportunity to make up the missed tax deposit(s) and return the offer if the IBTF taxpayer misses a subsequent tax deposit. Review the Automated Offer in Compromise (AOIC) case history to determine when the taxpayer's missed tax deposit(s) occurred in relation to when the SBSE offer investigator submitted the OIC case file with his/her rejection recommendation. If the AOIC history is not in the case file, it is available through the ACDS eCase. The following table provides instructions for determining whether SBSE neglected to follow significant IRM requirements resulting in the premature referral of an IBTF case:

    If... And... Then...
    The IBTF taxpayer's failure to make required tax deposit(s) occurred before the offer was submitted for rejection by the SBSE offer investigator SBSE did not give the taxpayer an opportunity to make up the missed tax deposit(s) SBSE did not follow IRM 5.8.7.2.2.2 procedures by neglecting to address the tax deposit issue with the taxpayer. Send the offer back to SBSE as a premature referral to address the tax deposit underpayment. If the taxpayer corrects the tax deposit underpayment, SBSE may send the case back to Appeals to consider the OIC appeal.
    The IBTF taxpayer's failure to make required tax deposit(s) occurred before the offer was submitted for rejection by the SBSE offer investigator SBSE previously gave the taxpayer an opportunity to make up the missed tax deposit(s) but the taxpayer did not do so SBSE did not follow IRM 5.8.7.2.2.2 procedures and the offer should have been returned by SBSE and not rejected. Send the offer back to SBSE as a premature referral.
    The IBTF taxpayer's failure to make required tax deposit(s) occurred either before or after the offer was submitted for rejection by the SBSE offer investigator SBSE previously gave the taxpayer an opportunity to make up missed tax deposit(s), the taxpayer made up the missed tax deposit(s) and then missed a subsequent tax deposit(s) Appeals will follow IRM 5.8.7.2.2.2 and not give the IBTF taxpayer a second opportunity to make up the subsequently missed tax deposit. Notify the IBTF taxpayer by telephone or correspondence that Appeals must sustain rejection of the offer because the taxpayer was previously given an opportunity to make up a missed tax deposit and has now missed a subsequent tax deposit, or contact the taxpayer or power of attorney and advise of the same. After issuing the letter or contacting the taxpayer or POA, close out the case as rejection sustained.
    The IBTF taxpayer's first failure to make required tax deposits occurred after the offer was submitted for rejection by the SBSE offer investigator The taxpayer is still not in compliance with tax deposits SBSE did not neglect to follow IRM procedures and Appeals must keep the OIC case. Review IRM 5.8.7.2.2.2 and See IRM 8.23.2.4 regarding cases when an IBTF taxpayer does not remain in compliance.

    Note:

    See the Reminder after the table in paragraph (7) above.

  9. Per IRM 5.8.7.2.2, SBSE may return an offer without appeal rights if the taxpayer failed to pay tax debts that accrued after the offer was processed. If the new tax liability, which includes unpaid tax, penalties and interest, accrued before the offer was submitted for rejection by the SBSE offer investigator, return the case as a premature referral. The offer should have been returned and not rejected and Appeals should not be looked upon to first address a tax compliance issue that has nothing at all to do with why the offer was rejected. (See the 'Reminder' in paragraph (7) above.) If the taxpayer submits the necessary payment to SBSE, they may send the case back to Appeals for consideration of the taxpayer's OIC appeal.

  10. A taxpayer submitting either a Short-Term Periodic Payment Offer or a Deferred Periodic Payment Offer is required to make the periodic installment payments proposed in such offer. If the taxpayer failed to make the periodic installment payments he/she proposed on the Form 656 before the offer was rejected, the case should be returned as a premature referral for SBSE to secure the necessary TIPRA payments.

    Note:

    Most taxpayers submitting a Periodic Payment offer will propose monthly payments, but monthly payments are not required under IRC 7122(c)(1)(B). The taxpayer is simply required to make the periodic installment payments in accordance with how they were proposed on the Form 656. Also, the TIPRA requirement for a taxpayer to make proposed periodic installment payments while a Periodic Payment offer is being considered ends when Collection issues the rejection letter. Taxpayers are not required to continue making proposed periodic installment payments while a rejected offer is being considered by Appeals unless Appeals secures an amended offer. See IRM 8.23.1.4.1 and IRM 8.23.3.4.

  11. Review the periodic payment proposal carefully before making a determination whether the taxpayer failed to make required proposed periodic installment payments before the offer was submitted for rejection by the SBSE offer investigator. The following table provides instructions for determining whether SBSE neglected to follow significant IRM requirements resulting in the premature referral of Periodic Payment OIC case:

    If... And... Then...
    The taxpayer's failure to make a proposed periodic installment payment(s) occurred before the offer was submitted for rejection by the SBSE offer investigator SBSE did not give the taxpayer an opportunity to make up the missed proposed periodic installment payment(s) SBSE did not follow IRM 5.8.4.7.2.1 procedures by neglecting to monitor the proposed periodic installment payment requirements and/or address the missed proposed periodic installment payment issue with the taxpayer. Send the offer back to SBSE as a premature referral to address the missed proposed periodic installment payment(s). If the taxpayer corrects the proposed periodic installment payment issue, SBSE may send the case back to Appeals to consider the OIC appeal.
    The taxpayer's failure to make a proposed periodic installment payment(s) occurred before the offer was submitted for rejection by the SBSE offer investigator SBSE previously gave the taxpayer an opportunity to make up the missed proposed periodic installment payment(s) but the taxpayer did not do so and there is no indication in the case file that SBSE determined special circumstances exist SBSE did not follow IRM 5.8.4.7.2.1 and IRC 7122(c)(1)(B)(ii) and the offer should have been considered withdrawn by SBSE and not rejected. Send the offer back to SBSE as a premature referral
    The taxpayer's failure to make a proposed periodic payment(s) occurred after an amended offer was secured by Appeals SBSE previously gave the taxpayer an opportunity to make up a missed proposed periodic payment(s), the taxpayer made up the missed payment(s) and then missed a subsequent proposed periodic payment after submitting an amended offer to Appeals Appeals will follow IRM 5.8.4.7.2.1 and not give the taxpayer a second opportunity to make up the subsequently missed proposed periodic payment unless special circumstances exist. Contact must have been made with the taxpayer to properly determine whether special circumstances exist.
    The taxpayer's first failure to make a proposed periodic payment(s) occurred after an amended offer was secured by Appeals The taxpayer is still not in compliance with proposed periodic payment requirements Review IRM 5.8.4.7.2.1 and IRM 8.23.3.4.1 for mandatory withdrawal case procedures for amended offers received by Appeals.

    Note:

    See the Reminder after the table in paragraph (7) above.

  12. Collection often receives additional information as part of the taxpayer's appeal or protest letter. Before sending the case to Appeals, the originating Collection office should review the additional information and document such information's impact, if any, on its determination of reasonable collection potential (RCP). If Collection did not review the information received with the appeal, the offer may be returned to Collection so that the information may be considered. The determination to return the case to Collection to fully address issues raised by the taxpayer in the protest letter should be made within 45 days of Appeals' receipt of the case. If Collection still believes the offer should be rejected after considering the new information, the offer will be returned to Appeals along with documentation of Collection's findings and Appeals will continue to process the appeal.

  13. In additional to neglecting to follow IRM requirements regarding the estimated tax or withholding requirements, tax deposits, or proposed periodic payment requirements outlined above, initial case review may also show that Collection failed to comply with other significant IRM requirements or that substantial additional information or case development is necessary. Unlike the other premature referral issues detailed in this section, the decision to return a case as a premature referral in either of these instances is subjective and Collection may not necessarily agree with Appeals' decision. The feedback transmittal must clearly identify the IRM requirement that Collection failed to follow and/or the case development action needed.

  14. There are other issues that should be screened out before proceeding with case evaluation. These are rare, but if found, the case should be returned to Collection as a premature referral:

    • Taxpayer paid in full before direct or written contact was initiated by Appeals

    • The 24-month period under IRC 7122(f) (commonly known as the TIPRA statute) lapsed before the offer was rejected by SBSE. In this instance, the offer was accepted by operation of law before SBSE rejected it and therefore Appeals has no jurisdiction to consider the appeal. A Form 3999, Statute Expiration Report, is not needed in this instance. Simply send the case back to SBSE as a premature referral due to lack of jurisdiction to consider the appeal.

    • There is an unreversed TC 914 or TC 916 that posted to the account before the offer was rejected. The offer should have either remained open in SBSE until the criminal investigation was closed or been returned and not rejected. See IRM 5.8.4.12.5. If the TC 914 or TC 916 posted to the account after the offer was rejected, see IRM 8.23.3.3.1.1 for Appeals procedures concerning coordination with other functions.

    • The SBSE Fraud Technical Advisor agreed there is potential fraud and the field Revenue Officer's fraud development investigation remains open. If this occurred before the offer was rejected, the offer should have been returned and not rejected. The instructions in the 9/2008 revision of IRM 5.8.4.11 regarding cases with indications of fraud are obsolete. The instructions in SBSE's August 21, 2008 Interim Guidance for the Development of Potential Fraud in Offers in Compromise are current and will be incorporated into an upcoming revision of IRM 5.8.4. The new procedures instruct SBSE to return the offer without appeal rights based on other investigations pending that may impact the liability to be compromised or the grounds upon which it was submitted.

    • Taxpayer submitted a claim for relief from joint and several liability (innocent spouse claim) as the requesting spouse and the claim was filed before the offer was rejected and the claim is still open. IRM 5.8.4.12.2 states that Collection should have suspended the offer pending disposition of the claim. If the claim was filed before the offer was rejected and is still open, the case may be returned to Collection as a premature referral.

      Note:

      See IRM 8.23.3.3.1.1 if a claim for relief from joint and several liability was filed after the offer was rejected and the taxpayer is either the requesting or the non-requesting spouse.

    • Taxpayer filed bankruptcy before the offer was rejected. Collection should have returned the DATC offer without appeal rights per IRM 5.8.10.2.1. Return the offer to Collection as a premature referral. See IRM 8.23.3.3.2.1 if the taxpayer filed bankruptcy after the offer was rejected.

    • The Partnership Investor File Control (PIFC) code on AMDIS is '5', indicating at least one open TEFRA key case linkage exists. Collection should have returned the DATC offer without appeal rights per IRM 5.8.4.12.1 because of the unresolved TEFRA partnership issue. Return the offer to Collection as a premature referral.

  15. The premature referral issues identified above that cause jurisdictional problems for Appeals are:

    • The taxpayer did not submit a timely appeal

    • The taxpayer paid the liability in full

    • The 24-month period under IRC 7122(f) lapsed before the offer was rejected by SBSE

    • The taxpayer filed bankruptcy before the offer was rejected by SBSE

    • The offer is based upon doubt as to liability and the prior case was closed in Appeals with a Form 870-AD or Form 2751-AD

    In the above three instances, Appeals has no jurisdictional basis to consider the offer. As a courtesy, if any of these issues are identified after 45 days has lapsed since the date Appeals received the case, either the AO/SO or the ATM should contact the Collection manager and explain why the case will be returned as a premature referral before sending it back. The other premature referral issues listed above do not cause jurisdictional problems for Appeals, so the cases should generally not be sent back as premature referrals if more than 45 days has lapsed since the date Appeals received the case.

  16. If it is determined that the case is ready for Appeals' consideration, send the Uniform Acknowledgment Letter if one was not previously sent and document such in the case activity record.

8.23.2.3.2  (08-28-2009)
Liability Previously Determined by Appeals

  1. When an OIC is based upon doubt as to liability and the liability was previously determined by Appeals, the offer will be assigned directly to Appeals for consideration without SBSE first rejecting the offer. This means the case will arrive in Appeals with an open TIPRA statute. On these OIC cases, Appeals is responsible for:

    • Determining the proper TIPRA statute expiration date and ensuring the WUNO has the necessary statute controls ( See IRM 8.23.2.3.)

    • Assembling the information and documents necessary to evaluate the offer

    • Determining the merits of the offer

    • Reaching a conclusion

    • Preparing the closing documents

    Note:

    See IRM 8.23.2.3.1 for premature referral issues involving cases previously closed by Appeals with either a Form 870-AD or Form 2751-AD, or prior cases closed on ACDS using Closing Code 21.

  2. The taxpayer must offer some amount of consideration. An offer of $0.00 is an abatement request and not an offer. The offer would generally be the amount of the expected corrected liability, penalties and interest. The taxpayer is not required to pay an OIC application fee or make any sort of TIPRA payment if the sole basis of the offer is doubt as to liability.

  3. The Appeals Officer should negotiate a settlement in a manner similar to an audit reconsideration examination. See IRM 8.23.3.10 for details on Appeals consideration of DATL offers.

    1. If an agreement is reached, the Appeals Officer will request that the taxpayer withdraw the offer and then process the necessary adjustment by completing Form 3870, Request for Adjustment.

    2. If the prior case disposition involved a Form 870-ADagreement, approval by either the Appeals Director of Field Operations or Appeals Director of Technical Services is required for re-opening. (See Policy Statement P-8-3 (formerly P-8-50), which is also IRM 1.2.17.1.3.)

    3. If an agreement is not reached or the taxpayer will not withdraw the offer, the Appeals Officer will act upon the offer based upon the settlement negotiations and recommend acceptance or rejection of the offer, as appropriate.

  4. Process the offer in accordance with IRM 8.23.6, OIC Processing and Closing Procedures.

8.23.2.4  (08-28-2009)
When Taxpayer Does Not Remain in Compliance

  1. One of the stated goals of the OIC program per Policy Statement P-5-100 (which is found in IRM 1.2.14.1.17) is that acceptance of an offer will create for the taxpayer an expectation of a fresh start toward compliance with all future filing and payment requirements. As additional consideration for an accepted offer based upon doubt as to collectibility, the taxpayer is required to timely file all federal returns and timely pay all tax when due for a period of five years after acceptance or until the offer amount is paid in full, whichever is longer. (See Section V of Form 656.) The prospect of this "fresh start" is eliminated when a taxpayer ceases being compliant with filing and/or payment requirements while the offer is being considered.

  2. Carefully review the premature referral criteria to determine when the specific issue(s) of noncompliance occurred in relation to when the offer was submitted for rejection by the SBSE offer investigator. See IRM 8.23.2.3.1. Compliance problems affecting the acceptability of an offer include instances in which the taxpayer failed to

    • timely file all required federal tax returns,

    • pay all tax, penalties and interest due on federal returns filed after the offer was submitted, or

    • pay current taxes, which includes required estimated tax payments or a sufficient amount of tax withheld from wages for Individual Master File (IMF) taxpayers, and timely federal tax deposits for In-Business Trust Fund (IBTF) taxpayers.

    Note:

    The look-back period for unfiled returns is generally six years. See IRM 5.8.3.13.

  3. If the issue(s) of noncompliance occurred after the offer was submitted for rejection by the SBSE offer investigator, Appeals will contact the taxpayer and attempt to verify and remedy the problem. The noncompliant taxpayer must promptly resolve the issue(s) of noncompliance.

    If... And... And Also... Then...
    The issue of noncompliance involves an IMF taxpayer with insufficient estimated tax payment(s) or a withholding underpayment The missed estimated tax payment(s) or withholding underpayment occurred after the offer was rejected by SBSE but before substantive contact is made by Appeals Contact with the taxpayer or POA is made by telephone or in person Appeals will follow IRM 5.8.7.2.2.1 guidelines and allow the taxpayer up to 30 days to provide the necessary payment and/or sufficient documentation to show the problem has been corrected. See paragraph (5) below for instructions for cases in which the taxpayer did not remedy the compliance problem by the established deadline.
    The issue of noncompliance involves an IMF taxpayer with insufficient estimated tax payment(s) or a withholding underpayment The missed estimated tax payment(s) or withholding underpayment occurred after the offer was rejected by SBSE but before substantive contact is made by Appeals Contact with the taxpayer or POA is made via Substantive Contact Letter or other correspondence Appeals will follow IRM 5.8.7.2.2.1 guidelines and allow the IMF taxpayer no fewer than 30 days to provide the necessary payment and/or sufficient documentation to show the problem has been corrected. See paragraph (5) below for instructions for cases in which the taxpayer did not remedy the compliance problem by the established deadline.
    The issue of noncompliance involves an IMF taxpayer with insufficient estimated tax payment(s) or a withholding underpayment The missed estimated tax payment(s) or withholding underpayment occurred after the offer was rejected by SBSE The Appeals conference was either previously held or the date for the scheduled conference has passed and the taxpayer did not participate in the conference Sustain rejection of the offer because Appeals has met its obligations to give the taxpayer an opportunity for the Appeals conference he/she asked for and an opportunity to correct the prior estimated tax and/or withholding underpayment problem
    The issue of noncompliance involves an IBTF taxpayer with a missed tax deposit(s) The missed tax deposit(s) occurred after the offer was rejected by SBSE but before substantive contact is made by Appeals Contact with the taxpayer or POA is made by telephone or in person Appeals will follow IRM 5.8.7.2.2.2 guidelines and allow the taxpayer 15 calendar days to provide sufficient documentation to show the tax deposit(s) was made and the associated late deposit penalty(s) paid in full. See paragraph (5) below for instructions for cases in which the taxpayer did not remedy the tax deposit and/or late deposit penalty problem by the established deadline.
    The issue of noncompliance involves an IBTF taxpayer with a missed tax deposit(s) The missed tax deposit(s) occurred after the offer was rejected by SBSE but before substantive contact is made by Appeals and the IBTF taxpayer did not previously miss and make up a tax deposit while the case was being considered by SBSE Contact with the taxpayer or POA is made via Substantive Contact Letter or other correspondence Appeals will follow IRM 5.8.7.2.2.2 guidelines and allow the taxpayer 30 calendar days to provide sufficient documentation to show the tax deposit(s) was made and the associated late deposit penalty(s) paid in full. See paragraph (5) below for instructions for cases in which the taxpayer did not remedy the tax deposit and/or late deposit penalty problem by the established deadline.
    The issue of noncompliance involves an IBTF taxpayer with a missed tax deposit(s) The missed tax deposit(s) occurred after the offer was rejected by SBSE The Appeals conference was either previously held or the date for the scheduled conference has passed and the taxpayer did not participate in the conference Sustain rejection of the offer because Appeals has met its obligations to give the taxpayer an opportunity for the Appeals conference he/she asked for and an opportunity to make up the missed tax deposit(s)
    If the issue of noncompliance is a tax debt(s) (which includes tax, penalties and/or interest) incurred by the taxpayer after the offer was processed and the tax debt(s) is not listed by SBSE as being part of the rejected offer (check the Form 656 and Form 1271 for tax debt(s) that SBSE considered to be part of the offer) Substantive contact has not yet been made by Appeals Contact with the taxpayer or POA is made by telephone, in person, or correspondence Allow the IMF taxpayer up to 30 days to fully pay the liability. See paragraph (5) below for instructions for cases in which the taxpayer does not fully pay the subsequent liability(s) by the established deadline.
    If the issue of noncompliance is a tax debt(s) (which includes tax, penalties and/or interest) incurred by the taxpayer after the offer was processed and the tax debt(s) is not listed by SBSE as being part of the rejected offer (check the Form 656 and Form 1271 for tax debt(s) that SBSE considered to be part of the offer) The Appeals conference was either previously held or the date for the scheduled conference has passed and the taxpayer did not participate in the conference The Settlement Officer

    • previously informed the taxpayer of the subsequent liability,

    • gave the taxpayer an opportunity to pay the subsequent liability including a specific deadline for payment, and

    • advised the taxpayer that Appeals must sustain rejection of the offer if the subsequent liability was not paid in full by the deadline

    		Sustain rejection of the offer because Appeals has met its obligation to give the taxpayer an opportunity for the Appeals conference he/she asked for and an opportunity to fully pay the subsequent tax liability

  4. It is critical in these instances for Appeals to provide the taxpayer with clear and specific instructions as to exactly what is required of the taxpayer, when such is due, and the consequence of Appeals making its decision based on available information and OIC criteria if the compliance issue is not promptly resolved. To enable Appeals to fully consider the disputed issues that caused SBSE to reject the taxpayer offer, the noncompliant taxpayer must do all of the following by the established deadline:

    1. File all past-due returns or provide sufficient documentation to support a claim of having had no filing requirement.

    2. Pay all tax, penalties and interest due on any return that was filed after the offer was submitted and not included by Collection as part of the offer. This includes the past due returns identified in a) immediately above.

    3. Make all required estimated tax payments or federal tax deposits by the established deadline or provide sufficient documentation to support claim of having no estimated tax requirement.

    4. IBTF taxpayers must pay all late deposit penalties incurred after the offer was submitted

    5. A wage earner with a insufficient year-to-date withholding must provide sufficient evidence that the proper amount of federal income tax is now being withheld and make an estimated tax payment for any projected underpayment for the current tax year caused by the previous under withholding .

  5. Per IRM 8.23.1.3, one of the four primary obligations Appeals has in a non-CDP OIC appeal is to offer the taxpayer an opportunity for the Appeals conference that he/she asked for under IRC 7122(e)(2). A compliance issue arising after SBSE rejected the offer but before the Settlement Officer's initial review of the case ( See IRM 8.23.2.3.1 for premature referral procedures for cases in which the compliance issue arose before the offer was rejected) does not relieve Appeals of its general obligation to offer the taxpayer an opportunity for the hearing he/she asked for under IRC 7122(e)(2). Even if the taxpayer is given a chance to remedy a compliance issue and fails to do so by the established deadline, standard conference and settlement practices applicable to all Appeals cases call for the Settlement Officer to offer the taxpayer an opportunity for a conference. Noncompliance with a filing and/or payment requirement may preclude Appeals from accepting the taxpayer's offer, but it does not preclude Appeals from giving the taxpayer an opportunity for a conference. If the taxpayer does not remedy the compliance issue prior to or at the scheduled conference, it may very well be that the only issue addressed by Appeals at the conference is the Settlement Officer advising the taxpayer why Appeals must sustain rejection of the offer and why other resolution options are similarly not available. If the taxpayer does not take part in the conference when scheduled, the AO/SO does not need to offer the non-CDP taxpayer a second opportunity. See also IRM 8.23.1.3 for more information about granting extensions of time in a non-CDP OIC case. The AO/SO may proceed with closing out the case.

    Note:

    An initial Substantive Contact Letter may be used to provide IMF and IBTF taxpayers with the opportunity to remedy a compliance issue that arose before the Appeals conference. The letter should inform the taxpayer in unambiguous terms that it is important for the taxpayer to resolve the compliance issue by the established deadline and that Appeals will proceed with the conference as scheduled even if he/she does not. Be sure to schedule the date of the Appeals conference on or after the date by which the taxpayer must have all compliance issues resolved.

  6. IRM 5.8.7 provides instructions to Collection on when to return an offer based upon a taxpayer's noncompliance. Appeals cannot "return" an offer that has already been rejected by Collection, but the same criteria in IRM 5.8.7 may be used by Appeals as a basis to sustain Collection's rejection of the taxpayer's offer.


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