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OFFER IN
COMPROMISE INVESTIGATION - IRM
5.8.4.1
(09-01-2005)
Overview
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This chapter provides:
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Instructions for conducting the different types of
offer investigations.
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Definitions for considering each possible basis under
which an offer may be filed.
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How to work offers filed under multiple bases.
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Directions for coordinating activities with other
Service functions.
5.8.4.2
(09-01-2005)
Doubt as to Liability
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After initial processing, offers based on Doubt as to
Liability (DATL) of a Trust Fund Recovery Penalty (TFRP) or
Personal Liability for Excise Tax (PLET) are transferred to
Area offices for assignment to Offer Specialists. All other
Doubt as to Liability (DATL) offers should be forwarded with
no initial processing, to Area Office Examination OIC
Coordinators.
-
For offers based on Doubt as to Liability (DATL) of a Trust
Fund Recovery Penalty (TFRP) or Personal Liability for Excise
Tax (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.
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The taxpayer must offer a dollar amount. An offer for zero
dollars on this basis, like any other, is not acceptable and
is subject to perfection requirements.
-
The administrative file should be secured and reviewed to
examine the supporting evidence that supported the assessment.
New information, testimony or documents presented by the
taxpayer should be considered. Refer to IRC 5.7, Trust Fund
Compliance Handbook, for a discussion of the factors and
evidence that support an assessment of a TFRP or PLET.
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A Doubt as to Liability (DATL) offer should be resolved in
one of the following ways:
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
(09-01-2005)
Effective Tax Administration and Doubt as to Collectibility
with Special Circumstances
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Refer to IRM 5.8.11, Effective Tax Administration , for a
full discussion on how to investigate and determine
acceptability of offers submitted under Effective Tax
Administration (ETA) or Doubt to Collectibility with Special
Circumstance (DCSC).
Note:
Offers Investigators should review any comments in item 9
on the Form 656 to determine if special circumstances should
be considered.
-
Effective Tax Administration (ETA) offers can be accepted
only when:
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There is no doubt the tax is owed and no doubt that
the full amount owed can be collected from the taxpayer.
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The taxpayer has a proven economic hardship or has
presented facts that would support acceptance under the
public policy/equity basis, and
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Compromise would not undermine compliance with tax
laws.
-
Doubt as to Collectibility with Special Circumstance (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
reasonable collection potential (RCP).
-
Factors establishing special circumstances under Doubt as
to Collectibility (DATC) are the same as those considered
under Effective Tax Administration (ETA). See IRM 5.8.11,
Effective Tax Administration , for a list of those factors.
5.8.4.4
(09-01-2005)
Doubt as to Collectibility
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Doubt as to Collectibility (DATC) offers may be worked
either in the Centralized Offers in Compromise (COIC) site by
Offer Examiners (OE) or in Area offices by Offer Specialists
(OS). Cases assigned to Offer Examiners (OE) in COIC may be
forwarded to Area offices for assignment to an Offer
Specialist (OS) if complex issues requiring a field
investigation are identified.
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For Doubt as to Collectibility (DATC) offers, the decision
to accept or reject usually rests on whether the amount
offered reflects reasonable collection potential (RCP). The
exception to this rule would be for offers not accepted based
on public policy reasons. Reasonable collection potential
(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 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.
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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.
5.8.4.4.1
(09-01-2005)
Components of Collectibility
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The following four components of collectibility will
ordinarily be included in calculating RCP for offer
purposes:
5.8.4.5
(09-01-2005)
Screen for Obvious Full Pay
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Offer Examiners (OE) will verify the full pay worksheet as
prepared by the Process Examiner (PE).
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If the amounts shown by the taxpayer on the Collection
Information Statement (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 be applied for this analysis.
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Review the case to ensure no special circumstances exist
that would warrant consideration under Effective Tax
Administration (ETA).
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Taxpayers who have submitted an offer with a Collection
Information Statement (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
(09-01-2005)
Actions Based on Reasonable Collection Potential
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Once the reasonable collection potential (RCP) has been
calculated, process the case as follows:
5.8.4.7
(09-01-2005)
Initial Action, Follow-Up, and Closing Action Time Frames
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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.
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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
(09-01-2005)
Initial Offer Actions
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Within 15 calendar days of the date an offer is assigned
to an Offer Examiner (OE) in Centralized Offer in Compromise
(COIC) or within 30 calendar days of the date an offer is
assigned to an Offer Specialist (OS), the assigned employee
must complete the following actions:
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Analyze the new receipt to determine if sufficient
information is available to make an decision regarding
the merits of the offer.
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If additional information is needed from the
taxpayer to reach a decision, issue an additional
information request, as appropriate. Where necessary
and appropriate, this request should also include
verification of the taxpayers compliance with the
current year's estimated tax (ES) payments.
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To the extent that information is available,
prepare an Asset/Equity Table (AET) and Income/Expense
Table (IET), to make a preliminary projection of case
resolution.
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If no further information is needed, initiate
appropriate follow-up actions to recommend the
disposition of the offer.
-
The initial lien determination should be made and
documented.
Note:
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.
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In situations where the Field Offer Specialists (OS) are
not co-located with the group manager, an additional five
(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
five (5) days to accomplish should be reported to the Area
Offer in Compromise Coordinator to determine the cause for
the delays.
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Generally, the AOIC assignment date will be the
assignment date of record.
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Prior to the income and expense analysis of an individual
offer where the taxpayer submitted a Form 656-A
certification, the Offer Investigator will determine whether
the taxpayers income and family unit size at the time the
offer was submitted supported the decision not to pay the
application fee. If the Offer Investigator 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), offer processing
should immediately cease. Return the offer using letter code
"RET-AB " for failure to pay the application fee.
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If additional information is required to make a decision,
contact the taxpayer or Power of Attorney (POA) to request
the additional supporting documents. If it is determined no
information is necessary issue a decision letter.
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The offer investigator may analyze the offer through
correspondence, in person, which may include telephone
contact, an office visit, or a field visit. Letters
available on AOIC such as the combo letter or an additional
information letter (L-2844) are appropriate to request
additional information.
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If the request for information is in writing the
correspondence must include:
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A list of the specific items/information needed,
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A specific deadline for providing the information,
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A statement indicating that the offer will be
returned without further consideration if all the
information is not provided,
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The name, phone number, and employee number of the
investigating employee,
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A statement regarding enclosure of Publication 1
and 594,
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Include Notice 1326, Offer in Compromise (OIC)
Applicants ALERT Notice.
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A statement indicating that a Notice of Federal Tax
Lien (NFTL) will be filed if a decision has been made
to file a lien.
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A statement addressing any potential special
circumstances (e.g. Effective Tax Administration or
Doubt as to Collectiblity with Special Circumstance),
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Rubber-stamp or otherwise enter on all outgoing
envelopes containing requests for additional
information "URGENT — TIME SENSITIVE" .
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If the request for information is in person (e.g. by
telephone, office, or field visit) the contact must include
the following information:
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Verify receipt of Pub. 1 and Pub. 594. If the first
conversation is with the Power of Attorney (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.
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Address and document any potential special
circumstances (e.g. Effective Tax Administration or
Doubt as to Collectibility with Special Circumstances)
identified during the initial review of documents
submitted with the offer.
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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 post of duty (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 Offer
Specialist. 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.
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To eliminate the potential for mis-routed cases, the
procedures outlined in IRM 3.13.62, Media Transport and
Control, will be followed.
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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.
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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.
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Any and all discrepancies will be resolved within
30 days.
5.8.4.7.2
(09-01-2005)
Follow-up Actions
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In order to ensure timely case processing, all in-process
offers must have follow-up dates scheduled for the next
appropriate action.
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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:
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No later than 15 calendar days after a deadline for
taxpayer action has passed without an adequate
response.
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No later than 15 calendar days of an established
deadline that has resulted in the receipt of
additional information.
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Within 30 calendar days in situations where no
contact has been established with the taxpayer or no
deadline has been given.
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Follow-up actions may include:
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Recommending acceptance or rejection if the
information received is sufficient to make a
conclusion regarding the offer.
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Recommending the case for closure when the taxpayer
has clearly failed to provide the requested documents
or information.
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Personal contact when the taxpayer has made an
attempt to comply with the requested documentation but
the provided information is incomplete, or needs
clarification.
5.8.4.7.3
(09-01-2005)
Case Recommendations and Closing Actions
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Case Recommendations
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Offer Examiners in Centralized Offer in Compromise
(COIC) must submit all appropriate recommendation
reports (i.e. Forms 1271/7249) within 10 calendar days
from the date of the documented case decision.
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Offer Specialists must submit all appropriate
recommendation reports within 15 calendar days from
the date of the documented case decision.
.
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Closing Actions
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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
(09-01-2005)
Documentation
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Documentation must include but is not limited to:
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The basis of the processability determination
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Plans of action
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Case actions
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Requests for information/documentation
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Receipt of requested information
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Conversations with taxpayers or representatives
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Results of internal information analysis
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Special issues or circumstances
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Financial analysis, if applicable
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Case decisions
Note:
Do not repeat information already present on AOIC
screens.
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Documentation should include evaluation of the income,
allowable expenses, asset values, and encumbrances. It should
support and define differences and/or verification of the
assets/expenses, including reasons for disallowance of income
and/or expenses.
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COIC employees will use AOIC to document case actions.
Field compliance employees will use Integrated Collection
System (ICS) to document actions. If 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 that the complete history is available on ICS.
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Documentation should be recorded the day the action occurs
or as soon as practical thereafter.
5.8.4.9
(09-01-2005)
Notice of Federal Tax Lien Filing
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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.
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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(1) above.
Example:
Your initial case analysis reveals that the taxpayer has
an interest in real property and no indication that a Notice
of Federal Tax Lien is filed. Or, your initial case analysis
indicates that there are no Notice of Federal Tax Liens
filed and the taxpayer threatens to file bankruptcy if we do
not accept the offer. You should immediately file the lien
to safeguard the government's interest.
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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.
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A NFTL will generally be filed whenever the unpaid balance
of assessments exceeds $5,000 and an offer is recommended for
rejection or a deferred payment offer is accepted.
Circumstances warranting non-filing in the above situations
should be clearly documented in the case histories.
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In the event a NFTL is filed and the taxpayer exercises
Collection Due Process (CDP) rights, it is not necessary to
delay processing of the offer to wait for the outcome of the
hearing. However, communication with Appeals is essential to
expedite processing of the offer.
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 Offer
Investigator 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.
5.8.4.10
(09-01-2005)
Combination Offers
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Taxpayers may submit an offer based on Doubt as to
Collectibility (DATC), Doubt as to Liability (DATL), Effective
Tax Administration (ETA) or any combination of the three.
During the offer investigation consider all bases submitted,
providing the taxpayer complies with the requests for
information needed as each basis is considered.
-
The offer will be accepted under only one basis. It is the
Service’s responsibility to determine the correct basis for
acceptance.
-
If the taxpayer submits the offer under both Doubt as to
Collectibility (DATC) and Doubt as to Liability (DATL) or
Effective Tax Administration (ETA), the Collection function
will determine DATC first. Collection will retain control of
the account on AOIC while coordinating with the Examination
function on any combination offer. See the chart below for
processing instructions.
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For offers submitted based on both Doubt as to
Collectibility (DATC) and Doubt as to Liability (DATL):
-
For offers submitted based on Doubt as to Collectibility
(DATC), Doubt as to Liability (DATL), and Effective Tax
Administration (ETA):
-
If a combo offer is forwarded to Examination and they
conclude that a different amount of liability is due,
generally an adjustment to the account will be made rather
than acceptance of the offer. If Examination requests a
release of the offer freeze to allow the adjustment, the TC
483 should be manually input to IDRS to temporarily release
the –Y freeze. This will allow the adjustment to post to the
account(s). TC 480 should be re-input to reconsider Doubt as
to Collectibility (DATC) or Effective Tax Administration (ETA)
issues as applicable following the adjustment of the account(s).
-
If Examination accepts, rejects, or secures a withdrawal on
a combo offer that is still open on AOIC and assigned to
"6500" (COIC) or "7000" (field OS),
sufficient information should be secured to close the record
on AOIC. If the offer is to be accepted, release the AOIC
record to the appropriate end processing center. Coordination
with Examination is required to ensure the accepted case file
is simultaneously mailed to the same center. The AOIC history
should be annotated indicating the basis for the closure.
-
Offices must print an inventory listing of accounts
assigned to "6500" (COIC) or "7000" (field
Offer Specialist) and reconcile it each quarter with
Examination to ensure all cases are still open and assigned.
Appropriate actions should be taken to resolve mismatches.
5.8.4.11
(09-01-2005)
Responsibility of Offer Specialist and Field Revenue Officers
-
Offer investigators are responsible for working only offer
aspects of an investigation. During the offer process
employees may discover collection issues that require
traditional Revenue Officer (RO) investigation. Generally, if
these issues are initially identified by an Offer Examiner (OE)
in COIC, the case will be forwarded to a field Offer
Specialist (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:
-
Note:
In the above situations , except in the case of
TFRP or PLET investigations, an OI will be initiated
only after the OIC manager and RO manager have
discussed the issue and agree that the situation
warrants the issuance of the OI.
5.8.4.12
(09-01-2005)
Coordination with Other Functions
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Coordination with other functions is sometimes required
during offer investigations. The most common coordination
occurs between Collection and Examination or Collection and
Appeals offices.
5.8.4.12.1
(09-01-2005)
Cases Pending in Examination
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During initial analysis of an offer, IDRS should be
checked to verify there are no actions for any periods
either included or not included on the offer; such as, open
audits, underreporter cases, TEFRA proceedings, or amended
returns pending but not yet assessed. Pending examination
cases may be identified by:
-
TC 922 without a CP 2000 process code or TC 290/291
-
TC 976 or 977 without a subsequent tax increase or
decrease
-
-L Freeze and/or an AMDIS record
-
Partnership Investor Control File (PIFC) code on
AMDIS of 5 indicating an investor with at least one
open TEFRA key case linkage
-
If any potential adjustments are identified the assigned
Examination or AUR function or employee should be contacted
to determine the status of the audit and informed that an
offer based on DATC has been received. The decision on how
to proceed with the offer should be based on the status of
the potential adjustment.
For example:
-
Within 7 to 14 calendar days prior to accepting an offer,
the Integrated Data Retrieval System (IDRS) should be
rechecked to ensure that there are no new audit issues
pending.
5.8.4.12.2
(09-01-2005)
Innocent Spouse Claims
-
When one spouse files an innocent spouse claim and the
other spouse submits an offer, the assigned Examination
employee should be contacted prior to proceeding to ensure
there are no additional reasons to delay the offer
investigation until the innocent spouse claim is resolved.
-
If a taxpayer files a Doubt as to Collectibility (DATC)
offer but raises an innocent spouse issue during the
investigation, the issue should be discussed with the
taxpayer. If appropriate, the offer should be withdrawn and
an innocent spouse claim should be forwarded to Examination.
-
If IDRS indicates that the taxpayer has an open innocent
spouse claim, or if a Doubt as to Collectibility (DATC)
offer and innocent spouse claim are filed simultaneously the
taxpayer should be requested to withdraw the offer unless
the Examination function advises that the claim will be
closed immediately with no change. If Examination indicates
that the claim appears valid and the taxpayer will not
withdraw the offer it should be suspended pending
disposition of the innocent spouse claim.
5.8.4.12.3
(09-01-2005)
Cases Pending or Decided in Appeals
-
During a Collection Due Process (CDP) or Equivalent
Hearing (EH) assigned to Appeals, an offer may be submitted
by the taxpayer. Taxpayers also occasionally submit a Doubt
as to Collectibility (DATC) offer during an appeal of a
proposed audit deficiency. Appeals retains jurisdiction of
both these types of offers, but may send an Appeals Referral
Investigation (ARI) to Collection.
An Appeals Referral Investigation (ARI) requesting
Collection Information Statement (CIS) verification of a
complex nature should be assigned to field revenue officers
(RO). The results of the investigation will be reported via
memorandum to Appeals and Appeals will conclude the
investigation.
Requests for any expeditious treatment of an ARI will be
decided on a case by case basis through a discussion between
the two functional managers.
-
Offers based on Doubt as to Liability (DATL) on Trust
Fund Recovery Penalty (TFRP) or Personal Liability Excise
Tax (PLET) assessments must be reviewed upon receipt to
ensure that the case is not pending or was not already heard
in Appeals. If a DATL assessment had previously been
determined in Appeals or is found to be currently assigned
to an Appeals office, the offer should be removed from AOIC
and transferred to Appeals. Coordination should be made with
Appeals to ensure that the TC 480 (and if applicable Command
Code STAUP to Status 71) is re-input with the proper Appeals
jurisdiction code, since removing the offer from AOIC will
reverse the TC 480.
If an offer based on Doubt as to Collectibility (DATC) only
is received and there is an open case pending in Appeals,
contact Appeals to determine who will have jurisdiction of
the offer.
5.8.4.12.4
(09-01-2005)
Open Criminal Investigations
-
Open criminal investigations can be identified on IDRS by
an unreversed transaction code (TC) 914 or (TC) 916. When
these transaction codes are discovered contact must be made
with the assigned Special Agent and procedures in IRM 5.1.5
followed. It may be necessary for the group or unit managers
to discuss with the Criminal Investigation division (CID)
manager to determine the next appropriate action. A decision
will need to be made on the appropriate actions to take
(including disposition of any application fee or deposit)
and what may or may not be discussed with the taxpayer.
-
Once a taxpayer has been advised of the open criminal
investigation, if the assigned Special Agent has no
objection, the taxpayer may be asked to withdraw the offer
until the criminal matter is resolved. If the taxpayer
declines to withdraw the offer a joint decision should be
made whether it should be closed as a return or held open
until the investigation is closed.
5.8.4.12.5
(09-01-2005)
Offer Submitted Solely to Delay Collection
-
When it is determined that an offer is submitted
"solely to delay" collection, the offer should be
returned to the taxpayer without further consideration. The
term "solely to delay" collection means an offer
was submitted for the sole purpose of avoiding or delaying
collection activity. A determination that an offer is
submitted solely for the purpose of delaying collection
should be apparent to an impartial observer. See IRM
5.8.3.19, Offers Submitted Solely to Delay Collection , for
a complete discussion of this topic and procedures to follow
when a case meeting this criteria is identified.
5.8.4.13
(09-01-2005)
Procedures for Certain Types of Taxpayers and Liabilities
-
Certain types of taxpayers and/or liabilities require
unique considerations. The instructions described below should
be followed when considering cases of this nature.
5.8.4.13.1
(09-01-2005)
Trust Fund Liabilities From Operating Businesses
-
When an offer is accepted to compromise trust fund tax
owed by an operating business, the taxpayer is relieved of a
significant operating expense. The effect is to grant the
delinquent taxpayer an economic advantage over competitors
who are in tax compliance. Recovery of the unpaid trust fund
tax amount is a significant issue when considering an offer
from a business taxpayer. In the interest of "fairness
to all taxpayers" the Service must be cautious to avoid
providing financial advantages to those taxpayers through
the forgiveness of employment tax debt, as this may be
detrimental to competitors who are remaining in compliance
with their tax obligations. The following procedures apply
to all In Business Trust Fund (IBTF) taxpayers, including
sole proprietorships, partnerships, as well as corporations.
-
These taxpayers must meet the compliance
requirements of IRM 5.8.3.4.1(1)(a), Determining
Processability, and must remain in compliance while
the offer is being considered. An untimely Federal Tax
Deposit (FTD) during investigation will result in a
return of the offer.
-
If financial analysis reveals that the taxpayer
cannot pay operating expenses and
remain current with taxes (i.e. the business is
operating at a loss), all business assets should be
valued rather than just valuing the income stream.
Close review should be conducted as well to see
whether the offer meets the criteria for return as one
"solely to delay collection."
-
Business tax returns (Schedule C, Form 1120, and
Form 1065), the taxpayers balance sheet, income
statements, and the Form 433-B, Collection Information
Statement for Business, need to be carefully analyzed
to arrive at the correct reasonable collection
potential (RCP). The following issues should be
carefully reviewed and/or considered:
1) Depreciation
— Do not allow depreciation. Instead allow
necessary actual monthly obligations paid to
secured creditors on depreciable assets (i.e.
autos, equipment or real estate loans).
2) Accounts Receivable
— Accounts receivable that are current (i.e.
generally less than 90 days past due) generally
should not be discounted at Quick Sale Value (QSV).
Value all accounts receivable at 100% of the
balance due, unless the taxpayer can substantiate
the account has been delinquent over 90 days. If
the account is determined to be delinquent, it may
be discounted up to a maximum of 50%. However,
supporting documentation is required to
substantiate accounts the taxpayer claims are
delinquent over 90 days; such as a request for the
taxpayer to provide an aging report. If the
account is over 90 days and the taxpayer fails to
provide substantiation, it will be valued at 100%.
Note:
A delinquent account
is defined as an uncollectible account that has
been delinquent for more than 90 days. A collectible
account is defined as one that may be
considered to be past due, but is still an
active client.
3) Personal Expenses
Paid by the Business — Financial
statements must be reviewed to ensure expenses
such as car payments, insurance, utilities, etc.
are not claimed on both the Form 433-A and the
Form 433-B.
4) Compensation to
Corporate Officers — Wages and/or
other compensation paid to corporate officers in
excess of applicable expenses allowable per
National and Local standards should generally not
be allowed as business expenses.
5) Stock Holder
Distributions and Repayment of Loans to Officers
— These expenses are discretionary in nature.
Distributions of this nature made after the
incurrence of the employment tax delinquency
should be factored into the reasonable collection
potential (RCP) analysis as dissipated assets.
Loans to officers should be considered an account
receivable and valued according to their
collectibility.
6) Potential Recovery
of "Priority Taxes" — Trust
fund tax plus associated interest is classified as
a "priority tax" in the U.S. Bankruptcy
code. As such this tax must be paid in full, in a
Chapter 11 or 13 payment schedule. If it is
probable that the taxpayer will file a Chapter 11
or 13 if the offer is returned or rejected, then
an offer should not be considered for less than
what would be recovered through the bankruptcy
proceeding.
7) Field Visits to
Evaluate Business Assets — A field
call should be made to validate the existence and
value of business assets and inventory for all
offers involving operating businesses and that
will be recommended for acceptance. The offer
specialist should make the call, if practical, or
initiate an Other Investigation (OI) to request
that a call be made by another revenue officer
(RO) if the taxpayer operates in a remote
location.
Note:
OIs referred per these instructions should be
considered high risk cases, code 100, and
processed accordingly.
5.8.4.13.2
(09-01-2005)
Corporate Trust Fund Liabilities
-
If an offer to compromise trust fund tax is being
considered for a corporation that is still in business all
the issues outlined in IRM 5.8.4.13.1 above should be
considered. In addition, the Trust Fund Recovery Penalty
(TFRP) must be addressed.
-
It is the Service's policy that the amount offered to
compromise a corporate employment tax liability must
include, in addition to what can be collected from the
corporation an amount equal to what can be collected from
all responsible persons, up to the amount of the TFRP (plus
interest, if the penalty has been assessed). However, if the
Service enters into a compromise with an employer for a
portion of the trust fund tax liability, the remainder of
the trust fund taxes may still be collected from a
responsible person pursuant to Section 6672 of the Internal
Revenue Code.
-
During initial analysis of an offer received from a
corporation involving unpaid trust fund tax the Offer
Specialist must determine the Assessment Statute Expiration
Date (ASED) of each period and take immediate steps to
protect it if expiration is imminent.
-
The following actions should be taken based on the facts
of the case:
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