Offer In Compromise Regulations - August, 2002
§ 301.7122-1 Compromises.
(a) In general—(1) If the Secretary determines that there
are grounds for compromise under this section, the Secretary may, at the
Secretary's discretion, compromise any civil or criminal liability
arising under the internal revenue laws prior to reference of a case
involving such a liability to the Department of Justice for prosecution
(2) An agreement to compromise may relate to a civil or criminal
liability for taxes, interest, or penalties. Unless the terms of the
offer and acceptance expressly provide otherwise, acceptance of an offer
to compromise a civil liability does not remit a criminal liability, nor
does acceptance of an offer to compromise a criminal liability remit a
(b) Grounds for compromise—(1) Doubt as to liability.
Doubt as to liability exists where there is a genuine dispute as to the
existence or amount of the correct tax liability under the law. Doubt as
to liability does not exist where the liability has been established by
a final court decision or judgment concerning the existence or amount of
the liability. See paragraph (f)(4) of this section for special rules
applicable to rejection of offers in cases where the Internal Revenue
Service (IRS) is unable to locate the taxpayer's return or return
information to verify the liability.
(2) Doubt as to collectibility. Doubt as to collectibility
exists in any case where the taxpayer's assets and income are less than
the full amount of the liability.
(3) Promote effective tax administration. (i) A compromise may
be entered into to promote effective tax administration when the
Secretary determines that, although collection in full could be
achieved, collection of the full liability would cause the taxpayer
economic hardship within the meaning of §301.6343–1.
(ii) If there are no grounds for compromise under paragraphs (b)(1),
(2), or (3)(i) of this section, the IRS may compromise to promote
effective tax administration where compelling public policy or equity
considerations identified by the taxpayer provide a sufficient basis for
compromising the liability. Compromise will be justified only where, due
to exceptional circumstances, collection of the full liability would
undermine public confidence that the tax laws are being administered in
a fair and equitable manner. A taxpayer proposing compromise under this
paragraph (b)(3)(ii) will be expected to demonstrate circumstances that
justify compromise even though a similarly situated taxpayer may have
paid his liability in full.
(iii) No compromise to promote effective tax administration may be
entered into if compromise of the liability would undermine compliance
by taxpayers with the tax laws.
(c) Special rules for evaluating offers to compromise—(1) In
general. Once a basis for compromise under paragraph (b) of this
section has been identified, the decision to accept or reject an offer
to compromise, as well as the terms and conditions agreed to, is left to
the discretion of the Secretary. The determination whether to accept or
reject an offer to compromise will be based upon consideration of all
the facts and circumstances, including whether the circumstances of a
particular case warrant acceptance of an amount that might not otherwise
be acceptable under the Secretary's policies and procedures.
(2) Doubt as to collectibility—(i) Allowable expenses.
A determination of doubt as to collectibility will include a
determination of ability to pay. In determining ability to pay, the
Secretary will permit taxpayers to retain sufficient funds to pay basic
living expenses. The determination of the amount of such basic living
expenses will be founded upon an evaluation of the individual facts and
circumstances presented by the taxpayer's case. To guide this
determination, guidelines published by the Secretary on national and
local living expense standards will be taken into account.
(ii) Nonliable spouses—(A) In general. Where a
taxpayer is offering to compromise a liability for which the taxpayer's
spouse has no liability, the assets and income of the nonliable spouse
will not be considered in determining the amount of an adequate offer.
The assets and income of a nonliable spouse may be considered, however,
to the extent property has been transferred by the taxpayer to the
nonliable spouse under circumstances that would permit the IRS to effect
collection of the taxpayer's liability from such property (e.g.,
property that was conveyed in fraud of creditors), property has been
transferred by the taxpayer to the nonliable spouse for the purpose of
removing the property from consideration by the IRS in evaluating the
compromise, or as provided in paragraph (c)(2)(ii)(B) of this section.
The IRS also may request information regarding the assets and income of
the nonliable spouse for the purpose of verifying the amount of and
responsibility for expenses claimed by the taxpayer.
(B) Exception. Where collection of the taxpayer's liability
from the assets and income of the nonliable spouse is permitted by
applicable state law (e.g., under state community property laws), the
assets and income of the nonliable spouse will be considered in
determining the amount of an adequate offer except to the extent that
the taxpayer and the nonliable spouse demonstrate that collection of
such assets and income would have a material and adverse impact on the
standard of living of the taxpayer, the nonliable spouse, and their
(3) Compromises to promote effective tax administration—(i)
Factors supporting (but not conclusive of) a determination that
collection would cause economic hardship within the meaning of paragraph
(b)(3)(i) of this section include, but are not limited to—
(A) Taxpayer is incapable of earning a living because of a long term
illness, medical condition, or disability, and it is reasonably
foreseeable that taxpayer's financial resources will be exhausted
providing for care and support during the course of the condition;
(B) Although taxpayer has certain monthly income, that income is
exhausted each month in providing for the care of dependents with no
other means of support; and
(C) Although taxpayer has certain assets, the taxpayer is unable to
borrow against the equity in those assets and liquidation of those
assets to pay outstanding tax liabilities would render the taxpayer
unable to meet basic living expenses.
(ii) Factors supporting (but not conclusive of) a determination that
compromise would undermine compliance within the meaning of paragraph
(b)(3)(iii) of this section include, but are not limited to—
(A) Taxpayer has a history of noncompliance with the filing and
payment requirements of the Internal Revenue Code;
(B) Taxpayer has taken deliberate actions to avoid the payment of
(C) Taxpayer has encouraged others to refuse to comply with the tax
(iii) The following examples illustrate the types of cases that may
be compromised by the Secretary, at the Secretary's discretion, under
the economic hardship provisions of paragraph (b)(3)(i) of this section:
Example 1. The taxpayer has assets
sufficient to satisfy the tax liability. The taxpayer provides full time
care and assistance to her dependent child, who has a serious long-term
illness. It is expected that the taxpayer will need to use the equity in
his assets to provide for adequate basic living expenses and medical
care for his child. The taxpayer's overall compliance history does not
weigh against compromise.
Example 2. The taxpayer is retired
and his only income is from a pension. The taxpayer's only asset is a
retirement account, and the funds in the account are sufficient to
satisfy the liability. Liquidation of the retirement account would leave
the taxpayer without an adequate means to provide for basic living
expenses. The taxpayer's overall compliance history does not weigh
Example 3. The taxpayer is
disabled and lives on a fixed income that will not, after allowance of
basic living expenses, permit full payment of his liability under an
installment agreement. The taxpayer also owns a modest house that has
been specially equipped to accommodate his disability. The taxpayer's
equity in the house is sufficient to permit payment of the liability he
owes. However, because of his disability and limited earning potential,
the taxpayer is unable to obtain a mortgage or otherwise borrow against
this equity. In addition, because the taxpayer's home has been specially
equipped to accommodate his disability, forced sale of the taxpayer's
residence would create severe adverse consequences for the taxpayer. The
taxpayer's overall compliance history does not weigh against compromise.
(iv) The following examples illustrate the types of cases that may be
compromised by the Secretary, at the Secretary's discretion, under the
public policy and equity provisions of paragraph (b)(3)(ii) of this
Example 1. In October of 1986, the
taxpayer developed a serious illness that resulted in almost continuous
hospitalizations for a number of years. The taxpayer's medical condition
was such that during this period the taxpayer was unable to manage any
of his financial affairs. The taxpayer has not filed tax returns since
that time. The taxpayer's health has now improved and he has promptly
begun to attend to his tax affairs. He discovers that the IRS prepared a
substitute for return for the 1986 tax year on the basis of information
returns it had received and had assessed a tax deficiency. When the
taxpayer discovered the liability, with penalties and interest, the tax
bill is more than three times the original tax liability. The taxpayer's
overall compliance history does not weigh against compromise.
Example 2. The taxpayer is a
salaried sales manager at a department store who has been able to place
$2,000 in a tax-deductible IRA account for each of the last two years.
The taxpayer learns that he can earn a higher rate of interest on his
IRA savings by moving those savings from a money management account to a
certificate of deposit at a different financial institution. Prior to
transferring his savings, the taxpayer submits an e-mail inquiry to the
IRS at its Web Page, requesting information about the steps he must take
to preserve the tax benefits he has enjoyed and to avoid penalties. The
IRS responds in an answering e-mail that the taxpayer may withdraw his
IRA savings from his neighborhood bank, but he must redeposit those
savings in a new IRA account within 90 days. The taxpayer withdraws the
funds and redeposits them in a new IRA account 63 days later. Upon
audit, the taxpayer learns that he has been misinformed about the
required rollover period and that he is liable for additional taxes,
penalties and additions to tax for not having redeposited the amount
within 60 days. Had it not been for the erroneous advice that is
reflected in the taxpayer's retained copy of the IRS e-mail response to
his inquiry, the taxpayer would have redeposited the amount within the
required 60-day period. The taxpayer's overall compliance history does
not weigh against compromise.
(d) Procedures for submission and consideration of offers—(1)
In general. An offer to compromise a tax liability pursuant to
section 7122 must be submitted according to the procedures, and in the
form and manner, prescribed by the Secretary. An offer to compromise a
tax liability must be made in writing, must be signed by the taxpayer
under penalty of perjury, and must contain all of the information
prescribed or requested by the Secretary. However, taxpayers submitting
offers to compromise liabilities solely on the basis of doubt as to
liability will not be required to provide financial statements.
(2) When offers become pending and return of offers. An offer
to compromise becomes pending when it is accepted for processing. The
IRS may not accept for processing any offer to compromise a liability
following reference of a case involving such liability to the Department
of Justice for prosecution or defense. If an offer accepted for
processing does not contain sufficient information to permit the IRS to
evaluate whether the offer should be accepted, the IRS will request that
the taxpayer provide the needed additional information. If the taxpayer
does not submit the additional information that the IRS has requested
within a reasonable time period after such a request, the IRS may return
the offer to the taxpayer. The IRS may also return an offer to
compromise a tax liability if it determines that the offer was submitted
solely to delay collection or was otherwise nonprocessable. An offer
returned following acceptance for processing is deemed pending only for
the period between the date the offer is accepted for processing and the
date the IRS returns the offer to the taxpayer. See paragraphs
(f)(5)(ii) and (g)(4) of this section for rules regarding the effect of
such returns of offers.
(3) Withdrawal. An offer to compromise a tax liability may be
withdrawn by the taxpayer or the taxpayer's representative at any time
prior to the IRS' acceptance of the offer to compromise. An offer will
be considered withdrawn upon the IRS' receipt of written notification of
the withdrawal of the offer either by personal delivery or certified
mail, or upon issuance of a letter by the IRS confirming the taxpayer's
intent to withdraw the offer.
(e) Acceptance of an offer to compromise a tax liability.—(1)
An offer to compromise has not been accepted until the IRS issues a
written notification of acceptance to the taxpayer or the taxpayer's
(2) As additional consideration for the acceptance of an offer to
compromise, the IRS may request that taxpayer enter into any collateral
agreement or post any security which is deemed necessary for the
protection of the interests of the United States.
(3) Offers may be accepted when they provide for payment of
compromised amounts in one or more equal or unequal installments.
(4) If the final payment on an accepted offer to compromise is
contingent upon the immediate and simultaneous release of a tax lien in
whole or in part, such payment must be made in accordance with the
forms, instructions, or procedures prescribed by the Secretary.
(5) Acceptance of an offer to compromise will conclusively settle the
liability of the taxpayer specified in the offer. Compromise with one
taxpayer does not extinguish the liability of, nor prevent the IRS from
taking action to collect from, any person not named in the offer who is
also liable for the tax to which the compromise relates. Neither the
taxpayer nor the Government will, following acceptance of an offer to
compromise, be permitted to reopen the case except in instances where—
(i) False information or documents are supplied in conjunction with
(ii) The ability to pay or the assets of the taxpayer are concealed;
(iii) A mutual mistake of material fact sufficient to cause the offer
agreement to be reformed or set aside is discovered.
(6) Opinion of Chief Counsel. Except as otherwise provided in
this paragraph (e)(6), if an offer to compromise is accepted, there will
be placed on file the opinion of the Chief Counsel for the IRS with
respect to such compromise, along with the reasons therefor. However, no
such opinion will be required with respect to the compromise of any
civil case in which the unpaid amount of tax assessed (including any
interest, additional amount, addition to the tax, or assessable penalty)
is less than $50,000. Also placed on file will be a statement of—
(i) The amount of tax assessed;
(ii) The amount of interest, additional amount, addition to the tax,
or assessable penalty, imposed by law on the person against whom the tax
is assessed; and
(iii) The amount actually paid in accordance with the terms of the
(f) Rejection of an offer to compromise. (1) An offer to
compromise has not been rejected until the IRS issues a written notice
to the taxpayer or his representative, advising of the rejection, the
reason(s) for rejection, and the right to an appeal.
(2) The IRS may not notify a taxpayer or taxpayer's representative of
the rejection of an offer to compromise until an independent
administrative review of the proposed rejection is completed.
(3) No offer to compromise may be rejected solely on the basis of the
amount of the offer without evaluating that offer under the provisions
of this section and the Secretary's policies and procedures regarding
the compromise of cases.
(4) Offers based upon doubt as to liability. Offers submitted
on the basis of doubt as to liability cannot be rejected solely because
the IRS is unable to locate the taxpayer's return or return information
for verification of the liability.
(5) Appeal of rejection of an offer to compromise—(i) In
general. The taxpayer may administratively appeal a rejection of an
offer to compromise to the IRS Office of Appeals (Appeals) if, within
the 30-day period commencing the day after the date on the letter of
rejection, the taxpayer requests such an administrative review in the
manner provided by the Secretary.
(ii) Offer to compromise returned following a determination that
the offer was nonprocessable, a failure by the taxpayer to provide
requested information, or a determination that the offer was submitted
for purposes of delay. Where a determination is made to return offer
documents because the offer to compromise was nonprocessable, because
the taxpayer failed to provide requested information, or because the IRS
determined that the offer to compromise was submitted solely for
purposes of delay under paragraph (d)(2) of this section, the return of
the offer does not constitute a rejection of the offer for purposes of
this provision and does not entitle the taxpayer to appeal the matter to
Appeals under the provisions of this paragraph (f)(5). However, if the
offer is returned because the taxpayer failed to provide requested
financial information, the offer will not be returned until a managerial
review of the proposed return is completed.
(g) Effect of offer to compromise on collection activity—(1)
In general. The IRS will not levy against the property or rights
to property of a taxpayer who submits an offer to compromise, to collect
the liability that is the subject of the offer, during the period the
offer is pending, for 30 days immediately following the rejection of the
offer, and for any period when a timely filed appeal from the rejection
is being considered by Appeals.
(2) Revised offers submitted following rejection. If,
following the rejection of an offer to compromise, the taxpayer makes a
good faith revision of that offer and submits the revised offer within
30 days after the date of rejection, the IRS will not levy to collect
from the taxpayer the liability that is the subject of the revised offer
to compromise while that revised offer is pending.
(3) Jeopardy. The IRS may levy to collect the liability that
is the subject of an offer to compromise during the period the IRS is
evaluating whether that offer will be accepted if it determines that
collection of the liability is in jeopardy.
(4) Offers to compromise determined by IRS to be nonprocessable or
submitted solely for purposes of delay. If the IRS determines, under
paragraph (d)(2) of this section, that a pending offer did not contain
sufficient information to permit evaluation of whether the offer should
be accepted, that the offer was submitted solely to delay collection, or
that the offer was otherwise nonprocessable, then the IRS may levy to
collect the liability that is the subject of that offer at any time
after it returns the offer to the taxpayer.
(5) Offsets under section 6402. Notwithstanding the evaluation
and processing of an offer to compromise, the IRS may, in accordance
with section 6402, credit any overpayments made by the taxpayer against
a liability that is the subject of an offer to compromise and may offset
such overpayments against other liabilities owed by the taxpayer to the
extent authorized by section 6402.
(6) Proceedings in court. Except as otherwise provided in this
paragraph (g)(6), the IRS will not refer a case to the Department of
Justice for the commencement of a proceeding in court, against a person
named in a pending offer to compromise, if levy to collect the liability
is prohibited by paragraph (g)(1) of this section. Without regard to
whether a person is named in a pending offer to compromise, however, the
IRS may authorize the Department of Justice to file a counterclaim or
third-party complaint in a refund action or to join that person in any
other proceeding in which liability for the tax that is the subject of
the pending offer to compromise may be established or disputed,
including a suit against the United States under 28 U.S.C. 2410. In
addition, the United States may file a claim in any bankruptcy
proceeding or insolvency action brought by or against such person.
(h) Deposits. Sums submitted with an offer to compromise a
liability or during the pendency of an offer to compromise are
considered deposits and will not be applied to the liability until the
offer is accepted unless the taxpayer provides written authorization for
application of the payments. If an offer to compromise is withdrawn, is
determined to be nonprocessable, or is submitted solely for purposes of
delay and returned to the taxpayer, any amount tendered with the offer,
including all installments paid on the offer, will be refunded without
interest. If an offer is rejected, any amount tendered with the offer,
including all installments paid on the offer, will be refunded, without
interest, after the conclusion of any review sought by the taxpayer with
Appeals. Refund will not be required if the taxpayer has agreed in
writing that amounts tendered pursuant to the offer may be applied to
the liability for which the offer was submitted.
(i) Statute of limitations—(1) Suspension of the statute
of limitations on collection. The statute of limitations on
collection will be suspended while levy is prohibited under paragraph
(g)(1) of this section.
(2) Extension of the statute of limitations on assessment. For
any offer to compromise, the IRS may require, where appropriate, the
extension of the statute of limitations on assessment. However, in any
case where waiver of the running of the statutory period of limitations
on assessment is sought, the taxpayer must be notified of the right to
refuse to extend the period of limitations or to limit the extension to
particular issues or particular periods of time.
(j) Inspection with respect to accepted offers to compromise.
For provisions relating to the inspection of returns and accepted offers
to compromise, see section 6103(k)(1).
(k) Effective date. This section applies to offers to
compromise pending on or submitted on or after July 18, 2002.
[T.D. 9007, 67 FR 48029, July 23, 2002; 67 FR 53879, Aug. 20, 2002]
|The above limited information is intended for
informational purposes only. If legal advice or other expert
assistance is required, the services of a competent professional should
be sought, and this general information should not be relied upon
without such professional assistance.
assistance, please contact A. Nathan Zeliff, Attorney