COMPROMISE INVESTIGATION - IRM
This chapter provides:
Instructions for conducting the different types of
Definitions for considering each possible basis under
which an offer may be filed.
How to work offers filed under multiple bases.
Directions for coordinating activities with other
Doubt as to Liability
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
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.
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.
A Doubt as to Liability (DATL) offer should be resolved in
one of the following ways:
new information is available and the TFRP or PLET
file supports the original assessment
amount of liability is determined and the taxpayer
agrees to the finding
and submit the Form 3870, Request for Adjustment, to
correct the assessment and secure a withdrawal of
the offer or recommend acceptance of the offer for
the correct amount.
amount of liability is determined and the taxpayer
still does not agree
a Form 3870 to correct the assessment and recommend
rejection of the offer.
Administrative file does not support the assessment
assessment in full and secure a withdrawal of the
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
Effective Tax Administration and Doubt as to Collectibility
with Special Circumstances
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
Offers Investigators should review any comments in item 9
on the Form 656 to determine if special circumstances should
Effective Tax Administration (ETA) offers can be accepted
There is no doubt the tax is owed and no doubt that
the full amount owed can be collected from the taxpayer.
The taxpayer has a proven economic hardship or has
presented facts that would support acceptance under the
public policy/equity basis, and
Compromise would not undermine compliance with tax
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.
Doubt as to Collectibility
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.
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 184.108.40.206.1 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.
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.
Components of Collectibility
The following four components of collectibility will
ordinarily be included in calculating RCP for offer
amount collectible from the taxpayers net
realizable equity in assets.
amount collectible from the taxpayers expected
future income after allowing for payment of
necessary living expenses. (a) For cash offers, it
is the amount collectible over the next 48 months
(b) For short term deferred offers, it is the
amount collectible over the next 60 months (c) For
deferred payment offers, it is the amount that is
collectible over the life of the collection
Collectible from third parties
amount we could expect to collect from third
parties through administrative or judicial action.
For example, amounts collectible through assertion
of a TFRP, a transferee assessment, nominee lien,
or suit to set aside a fraudulent conveyance.
and/or income that are available to the taxpayer
but are beyond the reach of the government
the lien will not attach, such as equity in assets
located outside the country.
Screen for Obvious Full Pay
Offer Examiners (OE) will verify the full pay worksheet as
prepared by the Process Examiner (PE).
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.
Review the case to ensure no special circumstances exist
that would warrant consideration under Effective Tax
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.
Actions Based on Reasonable Collection Potential
Once the reasonable collection potential (RCP) has been
calculated, process the case as follows:
Screen for Obvious Full Pay shows the taxpayer can
full pay based on CIS (See IRM 220.127.116.11 above)
rejection letter should be issued. (See IRM 5.8.7,
Return, Terminate, Withdraw, and Reject Processing)
offer must be increased in order to be recommended
Letter 3498 (SC/CG) or contact the taxpayer by
telephone to amend the offer to the acceptable
amount. If the taxpayer response does not change the
case determination issue the rejection letter using
the option to increase paragraph.
analysis shows the taxpayer can fully pay the tax
through liquidating assets and/or installment
Letter 3499 (SC/CG) or contact the taxpayer by
telephone. If the taxpayer response does not change
the case determination, issue the rejection letter
using the full pay paragraph.
offer amount equals or exceeds the RCP and the offer
is otherwise acceptable
acceptance letter should be issued. (See IRM 5.8.8,
circumstances are identified that warrant acceptance
for less than the RCP
||Consider an ETA
offer or DCSC. (See IRM 5.8.11, Effective Tax
Initial Action, Follow-Up, and Closing Action Time Frames
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.
The timely completion of an offer investigation is an
organizational priority. As such, unwarranted inactivity gaps
are to be avoided. (See IRM 18.104.22.168.6, Timeliness of Offer
Investigations, for definitions of timely case processing.)
Initial Offer Actions
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:
Analyze the new receipt to determine if sufficient
information is available to make an decision regarding
the merits of the offer.
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.
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
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
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.
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
Generally, the AOIC assignment date will be the
assignment date of record.
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.
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.
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
If the request for information is in writing the
correspondence must include:
A list of the specific items/information needed,
A specific deadline for providing the information,
A statement indicating that the offer will be
returned without further consideration if all the
information is not provided,
The name, phone number, and employee number of the
A statement regarding enclosure of Publication 1
Include Notice 1326, Offer in Compromise (OIC)
Applicants ALERT Notice.
A statement indicating that a Notice of Federal Tax
Lien (NFTL) will be filed if a decision has been made
to file a lien.
A statement addressing any potential special
circumstances (e.g. Effective Tax Administration or
Doubt as to Collectiblity with Special Circumstance),
Rubber-stamp or otherwise enter on all outgoing
envelopes containing requests for additional
information "URGENT — TIME SENSITIVE" .
If the request for information is in person (e.g. by
telephone, office, or field visit) the contact must include
the following information:
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.
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.
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.
To eliminate the potential for mis-routed cases, the
procedures outlined in IRM 3.13.62, Media Transport and
Control, will be followed.
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.
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.
Any and all discrepancies will be resolved within
In order to ensure timely case processing, all in-process
offers must have follow-up dates scheduled for the next
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
No later than 15 calendar days after a deadline for
taxpayer action has passed without an adequate
No later than 15 calendar days of an established
deadline that has resulted in the receipt of
Within 30 calendar days in situations where no
contact has been established with the taxpayer or no
deadline has been given.
Follow-up actions may include:
Recommending acceptance or rejection if the
information received is sufficient to make a
conclusion regarding the offer.
Recommending the case for closure when the taxpayer
has clearly failed to provide the requested documents
Personal contact when the taxpayer has made an
attempt to comply with the requested documentation but
the provided information is incomplete, or needs
Case Recommendations and Closing Actions
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.
Offer Specialists must submit all appropriate
recommendation reports within 15 calendar days from
the date of the documented case decision.
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
Documentation must include but is not limited to:
The basis of the processability determination
Plans of action
Requests for information/documentation
Receipt of requested information
Conversations with taxpayers or representatives
Results of internal information analysis
Special issues or circumstances
Financial analysis, if applicable
Do not repeat information already present on AOIC
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
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.
Documentation should be recorded the day the action occurs
or as soon as practical thereafter.
Notice of Federal Tax Lien Filing
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.
A NFTL filing determination must be made and documented on
all assigned cases as part of the initial offer actions
defined in IRM 22.214.171.124.1(1) above.
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.
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
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.
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
lien has been filed and a decision is made to not
file a lien until the conclusion of the
case file should be documented when a lien
determination was made and it should also include
the basis for the decision to withhold filing. An
additional determination will be required at the
conclusion of the investigation. Generally, a lien
will be filed if the offer is:
Remember that an attempt must be made to
contact the TP by phone, in person, or by letter to
advise of the filing before
requesting the lien. AOIC combo and
rejection letters satisfy the notification
determination is made to file a lien immediately
that an attempt to notify the TP of the proposed
filing (by phone, letter, or in person) has been
made and documented before
requesting the lien be filed. Provide the
required appeal rights per IRM 5.12, Federal Tax
Liens, if the taxpayer objects to the filing. If the
lien is filed and a CDP request is received process
it immediately following guidelines in IRM 5.1.9,
Collection Appeal Rights.
were previously filed but in an incorrect
whether to file a NFTL in the correct jurisdiction
or withhold filing until the conclusion of the
investigation. Follow instructions above based on
your decision. If the decision is made to withhold
the filing until the conclusion of the
investigation, an additional determination must
be made at that time.
were filed but have expired
instructions in IRM 5.12, Federal Tax Liens.
were filed and are currently in the refiled period
that liens are correctly refiled in all required
offer where the unpaid balance of assessment is
$5,000 or more and is being rejected or accepted
with deferred payment terms
||A lien will
normally be filed on these cases. Circumstances
warranting non-filing must be documented in case
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
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
For offers submitted based on both Doubt as to
Collectibility (DATC) and Doubt as to Liability (DATL):
decision is made to accept based on DATC
recommendation of acceptance on the DATC component
of a "combination offer" , the Offer
Investigator should review and discuss with the
taxpayer the option to agree with the current
recommendation of acceptance of the DATC offer or
opt to pursue the DATL offer. If the taxpayer
chooses not to pursue the DATL offer, recommend
acceptance of the DATC offer using normal
procedures. Do not send any information to
Examination. It is not necessary to amend the offer
to remove the reference to DATL.
collection potential (RCP) cannot be determined
because the taxpayer failed to provide the requested
information, or the taxpayer no longer meets
the offer using normal procedures. Do not send any
information to Examination.
chooses to withdraw the DATL basis only
an amended Form 656 removing the DATL basis. Do not
send any information to Examination and consider
chooses to withdraw the DATC basis
an amended Form 656 eliminating the DATC basis.
Close the AOIC record as a withdrawal. Annotate the
AOIC history indicating the offer is being forwarded
to Examination and why. Note:
Monitor the case until the TC 482 posts
after closing the AOIC record. Then, coordinate with
Examination to ensure that the TC 480 jurisdiction
code 2 (Exam) and Status 71 are input.
decision is made to reject the offer based on the
Form 1271, Rejection or Withdrawal Memorandum, per
IRM 5.8.7, Return, Terminate, Withdraw, and Reject
Processing, and send to the Independent
Administrative Reviewer (IAR). Once approved by the
IAR: (1) Send the letter to the TP explaining the
reasons for rejection based on DATC, using the
following statement: "We have concluded our
evaluation of your offer based on Doubt as to
Collectibility and are now forwarding it to the
following office for consideration of the Doubt as
to Liability issue." (2) Assign the AOIC record
to 7000 (field) and 6500 (COIC), and (3) Forward the
entire case file to Examination with a cover memo
requesting an expedite evaluation of the DATL issue
and advise us of the outcome so the AOIC record can
be closed or transferred to Appeals if the TP
appeals the decision to reject the DATC basis.
For offers submitted based on Doubt as to Collectibility
(DATC), Doubt as to Liability (DATL), and Effective Tax
determination is made to accept under ETA - hardship
provisions, but DATL must be determined first
the offer, any pertinent information and a memo to
Examination requesting an expedite investigation of
the DATL issue. If Examination responds stating
there is no DATL issue, accept as an ETA. If
Examination states there is DATL issue: (1) Send the
AOIC transfer letter to the TP advising where the
case was transferred. In the open paragraph inform
the taxpayer that Examination has concluded there is
DATL issue so ETA cannot be considered. (2) Assign
the case to 7500, and (3) Advise Examination to
notify Collection when the case is completed so the
AOIC record can be closed.
determination is made to reject under ETA but accept
under Doubt as to Collectibility with Special
under that basis. It is not necessary to amend the
offer to remove the other bases. Nothing should be
forwarded to Examination.
collection potential (RCP) can not be determined
because the taxpayer failed to provide the required
information, or the taxpayer no longer meets
the offer using normal procedures. Do not send any
information to Examination.
determination is made that the offer should be
rejected based on DATC but the ETA offer is
submitted based on public policy/equity issue(s)
requiring Examination consideration.
1271 per IRM 5.8.7, Return, Terminate, Withdraw, and
Reject Processing, and send to the Independent
Administrative Reviewer (IAR).
Once approved by the IAR: (1) Send a letter to the
TP explaining the reasons for rejection based on
DATC, using the following statement: "We have
concluded our evaluation of your offer based on
Doubt as to Collectibility and are now forwarding it
to the following office for consideration of the
public policy/equity issue." (2) COIC should
assign the AOIC record to "6500 " (COIC)
and Offer Specialists should assign it to "7000
" , and(3) Forward the entire case file to
Examination with a cover memo asking them to
expedite evaluation and advise Collection of the
outcome so the AOIC record can be closed or assigned
to Appeals if the TP appeals the decision.
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.
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:
Nominee or Alter Ego
these issues arise during an offer investigation,
Offer Specialist (OS) should establish a valuation
for the involved asset or income stream. The OS
should include the value in computing the reasonable
collection potential (RCP) but not actually complete
the administrative actions required to establish the
liability or secure a lien against the third party.
If the value of the involved asset or income stream
will be obtained through an accepted offer, that
fact should be clearly documented and any
transferee, nominee or alter ego remedy not pursued
through administrative or judicial action.
If the offer is rejected or moving toward rejection
and time is of the essence due to the
dissipation/transfer of assets or statute
expiration, a Form 2209, Courtesy Investigation, or
Other Investigation (OI) should be initiated to
request the assignment of a RO to complete the
required action to establish the transferee, nominee
or alter ego liability or lien.
or seizure related actions
during the course of an offer investigation an Offer
Investigator determines that immediate levy or
seizure action may be needed, the case will be
referred to the Collection field function. The offer
investigator will initiate an OI request to an RO
group outlining the actions needed and providing any
additional information that would assist the RO.
Upon notification that a jeopardy levy has been
approved the Offer Investigator will follow the
procedures to close the offer outlined in IRM
126.96.36.199, Offers Submitted Solely to Delay
Collection, if both the field and offer manager
concur that the offer was filed to hinder or delay
Specialists (OS) should consider the value of any
recovery that may be made through a suit when
determining reasonable collection potential (RCP).
If the anticipated recovery amount is obtained
through an accepted offer this fact should be
clearly documented and the suit recommendation not
pursued. If the offer is rejected or moving toward
rejection and time is of the essence due to the
statute expiration for filing suit, an OI should be
initiated to request the assignment of a RO to
complete the suit recommendation.
action on In Business Trust Fund (IBTF) cases
to the potential for the pyramiding of liabilities
and dissipation of assets in IBTF cases, the Offer
Specialist will initiate an OI on rejected or
returned offers involving ongoing businesses with
employment tax liabilities. Because rejected,
returned and withdrawn offers do not systemically
revert to Status 26 (field assignment), the OI
serves as an open assignment until the case is
systemically assigned to Status 24 (queue), at which
time the collection group manager can assign the
case to an RO and close the OI. This process will
generally take about 30 days.
Fund Recovery Penalty (TFRP) and Personal Liability
for Excise Tax (PLET) cases
||It is the
responsibility of the traditional RO to complete the
investigation and make a determination regarding
personal responsibility in these cases. Follow the
provisions in IRM 5.7.4, Investigation and
Recommendation of TFRP. The process of completing
the TFRP or PLET can be ongoing while the offer is
pending, but before the determination is finalized.
The LEM 5.4, non-assertion criteria, does not apply
when an offer is under consideration. The TFRP
be completed, because the reasonable collection
potential (RCP) for the corporate offer must include
not only what can be collected from the corporation,
but any amounts that could reasonably be expected to
collect from responsible officers on a TFRP
assessment. For this reason, a hardship
"non-assertion" recommendation against a
responsible person should not be proposed if there
is any reasonable collection potential (RCP) for
that person based on current offer guidelines.
TFRP investigations should be completed through the
point of assessment (i.e. through delivery of
Letter(s) 1153 (DO) and consideration of any timely
protests). See IRM 188.8.131.52 below for instructions
on processing these investigations in conjunction
with open offers.
OIs referred per these instructions should be
considered high risk cases, i.e. risk code 100,
and processed accordingly.
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.
Coordination with Other Functions
Coordination with other functions is sometimes required
during offer investigations. The most common coordination
occurs between Collection and Examination or Collection and
Cases Pending in Examination
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
-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.
TP was involved in abusive tax avoidance
transactions (ATAT), appears to have substantial
unreported income (UIDIF), or there is another
reasonable explanation given by the assigned
Examination employee as to why the audit should
TP should be advised that the offer investigation
cannot proceed until the Exam issues have been
resolved. Solicit a withdrawal explaining that it
is in the TPs best interest due to CSED
suspension. If the TP refuses to withdraw,
consider returning the offer using the AOIC reason
"Other investigations are pending that may
affect the liability sought to be compromised or
the grounds upon which it was submitted" .
audit is routine and the assigned Exam employee
has agreed to close the tax year(s) with no change
with the offer investigation.
audit is routine, but nearly concluded, and
Examination wishes to conclude and assess the tax.
with the offer investigation. Talk to the TP and
the Revenue Agent (RA) to coordinate securing an
agreement to the deficiency to expedite
assessment. Include the tax year in the
acceptance, but do not issue the acceptance letter
until the tax is assessed.
return has been selected for examination or
Automated Under Reporter (AUR) consideration, but
not yet assigned.
the controlling Examination or AUR function to
advise that we are proceeding with the offer
Partnership Investor File Control (PIFC) code on
AMDIS is a 5, indicating at least one open TEFRA
key case linkage exists
the TP that we cannot consider an offer until all
TEFRA partnership issues have been resolved.
Attempt to secure a withdrawal. If the taxpayer
refuses to withdraw, consider returning the offer
using the AOIC Return Letter paragraph "Other
investigations are pending that may affect the
liability sought to be compromised or the grounds
upon which it was submitted."
Partnership Investor File Control (PIFTD) code on
AMDIS is a 7, the TEFRA case is closed
the assigned Examination employee that the
assessment was made and include the additional
liability(s) in the offer.
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
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.
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
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
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.
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
184.108.40.206, 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.
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.
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 220.127.116.11.1(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:
— 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%.
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
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
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
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
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
OIs referred per these instructions should be
considered high risk cases, code 100, and
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 18.104.22.168.1 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
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:
the RO will…
the Offer Specialist will…
TFRP has been completed and the assessment
processed prior to the time the corporate offer is
this fact on ICS and Form 657 submitted with the
a copy of the Form 4183 and the CIS for each
responsible person and proceed with offer
TFRP has not been completed at the time the
corporate offer is submitted, but the RO is
continuing to complete the TFRP investigation and
plans to request assessment
holding the balance due accounts in Status 26
until the Form 4183 is approved, Letter 1153 (DO)
issued, and the assessment requested. Request
Status 71 on the Corporate liability at the time
the TFRP assessment is processed. Send copies of
the signed Form 4183 and CIS on the responsible
officers to the Offer Specialist when secured.
a copy of Form 4183 and the CIS for each
responsible person and proceed with the
investigation. Coordinate with the field RO and if
information needed to make a TFRP determination is
not received in a reasonable amount of time,
return the offer based on failure to provide the
TFRP has been completed but not assessed at the
time the corporate offer is submitted and the RO
recommends withholding assessment of the penalty
until the offer investigation is completed
the investigation through issuance of Letter 1153
(DO) and process any appeals received. Establish
an OI to maintain control of the TFRP case. Send
copies of the Form 4183 and CIS for each
responsible person to the Offer Specialist. Secure
a Form 2750 from each responsible person extending
the ASED to ensure there are at least 2 years
remaining on the statute from the date the offer
a copy of the Form 4183 and CIS for each
responsible person from the field RO and proceed
with the investigation. Coordinate with the field
RO and if a CIS and/or information is needed to
make the TFRP determination is not received in a
reasonable amount of time, return the offer for
failure to provide requested information.
fund tax is due, the corporate account is not
assigned to an RO and the TFRP has not been
investigated, or was investigated and was not
asserted because the potential assessment was
below LEM-V criteria or was potentially
uncollectibility from responsible officer.
the TFRP investigation, using an OI (coded 100).
Follow the chart above based on a decision of
whether to assess TFRP or not. OI should be
completed within 90 days.
a field group to ensure an OI is assigned to an RO
to conduct the investigation. Follow the chart
above based on the decision of the RO. Coordinate
with the RO and if information is needed to make a
TFRP determination and it is not received in a
reasonable amount of time, return the offer based
on failure to provide requested information.
ASED has expired without any TFRP assessment
expiration in the case history and continue
processing the offer determining only the
corporation’s RCP. Prepare an expired statute
notification and submit to your manager for
If a decision is made to accept the corporate offer and
the TFRP is not assessed, as a condition of acceptance of
the offer, Form 2751, Proposed Assessment of Trust Fund
Recovery Penalty, and Form 2750, Waiver Extending Statutory
Period for Assessment of Trust Fund Recovery Penalty, must
be secured from each responsible person. The ASED should be
extended to a date 2 years beyond the anticipated completion
date of all terms and conditions of the offer, the
applicable compliance provisions, and any related collateral
agreements. The complete TFRP administrative file, including
the signed Forms 2751 and 2750 should be sent with the
accepted offer file to the appropriate Monitoring OIC (MOIC)
unit once the offer is accepted. Should the offer default,
that unit will be responsible for returning the TFRP
Administrative file to the appropriate area office for
Ensure the responsible persons are advised of IRC
Section 6501(c) (4)(B) rights to (1) refuse to extend the
statute, (2) limit the extension to particular issues, or
(3) limit the extension to a particular period of time.
If the person refuses to extend the statute, a decision
must be made to either (1) accept the offer without
protecting the Service's ability to later assess the
penalty, (2) assess the penalty, or (3) reject the offer.
When a cash offer is accepted from a corporation and has
been paid in full all employees assigned related TFRP
accounts should be notified and asked to initiate the Form
3870, Request for Adjustment, only
if the amount offered will full pay the TFRP liability. If
the accounts are not currently in active collection status
the Offer Specialist (OS) should initiate the adjustment
requests. The Form 3870 should request that the TFRP
module(s) be brought to a "zero" balance. If any
payment or refund offset has been made on the TFRP the Form
3870 should also include the statement "Do not refund
any credits on the module" .
When a deferred payment offer is accepted from a
corporation the Form 3870, Request for Adjustment, for each
related TFRP should be prepared as in (6) above, but should
be attached to the accepted file when it is forwarded to the
Monitoring OIC (MOIC) unit. A note should be attached asking
that the Form 3870 be processed when the offer amount has
been paid in full, only
if the amount offered will full pay the TFRP liability.
Employees assigned TFRP accounts should be notified of the
acceptance and should assign all account(s) to IDRS t-sign
code "8500" .
In the situation where the amount offered by a
corporation combined with the payments already made on
related TFRP assessments exceeds the total employment tax
liability of the corporation for the same tax periods:
Request the responsible person(s) sign irrevocable
requests to transfer their payments on the TFRP
accounts to the related corporation liability.
Complete and process Form 3870 to accomplish the
Secure full payment of the balance due from the
Secure a withdrawal of the offer.
The above situation should be rare. If the combined
payments made on the related TFRP assessments exceed the
total employment tax liability of the corporation, then
the accounting transactions completed by the campus should
have posted the related payments to all accounts.
Excise Tax Liabilities
When the Personal Liability Excise Tax (PLET) is assessed
at the time we accept an offer from the business, we may
still collect from the responsible person any amount not
paid by the business. Therefore, do not request abatement of
the PLET just because the business's liability has been
While investigating an offer to compromise excise tax
subject to PLET, also:
Determine if the PLET has been assessed.
Follow locally established guidelines if no PLET
investigation has been completed. Actual assessment of
the PLET may be held in abeyance pending the outcome
of the offer investigation.
Verify ASEDs and protect them if expiration is
Secure a Collection Information Statement (CIS)
from each responsible person.
The assessment waiver on the Form 656 does not extend
the statute of limitations for assessing the PLET against
a responsible person.
If the taxpayer should default an accepted offer, an
opportunity to assert the PLET will be available at that
time. For this reason, when an offer is accepted from a
business based in part on our ability to collect the excise
tax from responsible persons no PLET will be assessed:
As a condition of acceptance secure the Form 9490,
Waiver Extending Statutory Period for Assessment of
Personal Liability for Excise Tax, from each
Extend the assessment statute 2 years beyond the
anticipated completion date of all terms and
conditions of the offer; including the applicable
compliance provision and any related collateral
Insure the responsible person is advised of IRC
Section 6501(c)(4)(B) rights to: (1) refuse to
extend the statute, (2) limit the extension to
particular issues, (3) limit the extension to a
particular period of time. If the person refuses to
extend the statute a decision must be made to
either: (1) accept the offer without protecting the
Service’s ability to later assess the penalty, (2)
assess the penalty and include the additional
liability in the offer, or (3) reject the offer.
Forward the Form 9490, Waiver Extending Statutory
Period for Assessment of Personal Liability for Excise
Tax, to Compliance Services with the accepted offer
file. Should the offer default, this file will be
returned to the Compliance Area office for processing
and assessment of the PLET.
The Form 9490 is not required for any responsible
person who makes a designated payment of the excise
tax or when a non-assertion decision has been made
because the excise tax could not be collected from
Partnership employment tax liabilities are not
"joint and several" as are joint income tax
assessments. The Service's ability to collect from the
partners is based on state law.
When a partnership liability is compromised for any
individual general partner our ability to collect from all
other general partners may be affected. Therefore, the
amount offered to compromise a partnership tax liability
must include what we can collect from the partnership plus
what can be collected from each of the general partners. No
offer should be accepted to compromise only one partner’s
individual liability for the partnership debt.
When investigating partnership offers a Collection
Information Statement (CIS) should be secured from the
partnership and from all
general partners. The reasonable collection potential (RCP)
for the partnership must equal what could be collected from
the partnership plus what could be collected from all
general partners. Generally, an offer based on Doubt as to
Collectibility (DATC) from a partnership will not be
accepted when the RCP of one or more of the general partners
cannot be determined. When it is not possible to secure a
CIS from one or more of the general partners, because they
cannot be located or they refuse to cooperate or join in the
offer, the offer may still be accepted if the investigation
is able to establish that there is no collection potential
from the non-participating partners.
Child Support Obligations
While the Service is charged with collecting certain
child support obligations, we do not have the authority to
compromise them. These accounts are identified on the
Non-Master-File with a Masterfile Transaction (MFT) code of
If a taxpayer proposes a compromise that includes a child
support liability, Service employees should request that the
offer be amended to remove the child support obligation. If
the offer is acceptable it can be compromised without
including the child support debt. If the taxpayer refuses to
remove the child support liability the offer should be
rejected using the public policy reason and the open
paragraph stating that "We do not have authority to
compromise child support obligations" .
Concluding the Offer Investigation
Once the reasonable collection potential (RCP) has been
calculated, immediate action should be taken to bring the case
to closure. See IRM 22.214.171.124.3 above for time frames within
which closing actions must be taken.
Asset/Equity Table (AET)
Income/Expense Table (IET)
Offer in Compromise Recommendation Report
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.
If Adobe Acrobat is
needed to view the above forms. A free version of Acrobat
Reader is available by
CAUTION: There are many providers of services on the
internet who will submit your Offer in Compromise forms.
However, such providers merely have you complete the forms.
These bargain basement "Offer experts" may be only
mailing the forms you prepare to the Internal Revenue Service.
Thus, they have done nothing for you. In fact, they may end up
costing you more because critical review and analysis has not
been done. When completing the financial statement forms and
making the Offer, you are painting a financial picture that will
determine the amount of an acceptable Offer. Unless your
representative has the necessary skills and experience, you may
have paid a small fee, only to be subjected to settling for more
under the Offer than you otherwise should have. Your
professional must have experience in: calculating your income
and expenses; determining the amount of the offer you should
make; valuing your assets and liabilities; reviewing joint
ownership considerations; working with the tax law and IRS
internal procedures; arguing the facts and the law, and
negotiating with the IRS.
The IRS has a history of intimidation, and let's face it,
they will take advantage of any taxpayer who represents himself,
and even a taxpayer's advocate who is weak. Remember, IRS Offer
Specialists generally have "collection" backgrounds
and they come at you from the perspective of getting as much
money as they can.
In the end analysis, you should measure the benefits
you derive from the final result. For a taxpayer to engage
someone who merely mails in your Offer forms for a
what at first blush looked like "such a deal", may in
reality end up costing you many thousands of dollars more
because you didn't choose a tax professional who would negotiate
the best settlement for you.
contact A. Nathan Zeliff, Attorney at Law