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5.8.3  Processability

5.8.3.1  (09-01-2005)
Overview

  1. All offer receipts other than those based solely upon Doubt as to Liability (DATL) are reviewed to determine if they are processable. No fee is due on Doubt as to Liability (DATL) offers, including Trust Fund Recovery Penalty (TFRP). Processable offers are then "built" (i.e. internal and external information is secured to verify financial information), and perfected, if necessary, before being assigned for investigation. Not processable offers are returned to taxpayers. This chapter defines the procedures to be followed for determining jurisdictional responsibility, processability, and case building.

5.8.3.2  (09-01-2005)
Routing Cases Based on Jurisdictional Responsibility

  1. The following table provides guidance when it has been determined that Collection does not have jurisdictional responsibility:

    If responsibility lies with… Then…
    Department of Justice (DOJ) Contact Area Counsel to determine the status of the pending bankruptcy or litigation and whether Collection has jurisdiction to process the offer. If the DOJ requests the offer be sent directly to them, delete the offer from the Automated Offer in Compromise (AOIC) system and forward the case to the DOJ.
    Examination Send the offer directly to the OIC Coordinator in Technical Support. No fee is required for these offers. Do not open a record on the AOIC system. If the record was inadvertently loaded to AOIC, delete the record.
    Appeals Determine processability, complete the AOIC " Appeals Fee Screen" and follow the established Appeals application fee procedures.

     

5.8.3.3  (09-01-2005)
Combined Application Fee Payment Processing

  1. Multiple offers submitted with one remittance intended as the application fees for all will not be processed. Do not load the cases to the Automated Offers in Compromise (AOIC) system. Return the offers to the submitter (i.e.- Power of Attorney not the individuals) with the Letter 3796.

5.8.3.4  (09-01-2005)
Processability

  1. Centralized Offers in Compromise (COIC) Process Examiners (PE) are responsible for determining processability of all offers received and worked by the Service, except those based solely on Doubt as to Liability (DATL) issues. This determination must be made within 14 calendar days of receipt of an offer in compromise in the appropriate COIC site.
    Each new receipt will fall into one of the following categories:

    • Not processable – the taxpayer does not meet one or more of the minimum established criteria for offer consideration.

    • Processable – The taxpayer meets the minimum criteria for offer consideration.

     

5.8.3.4.1  (09-01-2005)
Determining Processability

  1. An offer in compromise will be deemed not processable if one or more of the following criteria are present:

    1. Taxpayer Not in Compliance — All tax returns for which the taxpayer has a filing requirement must be filed. This rule applies even if a Service employee previously decided not to pursue the filing of the return under the provisions of Policy Statement P-5-133, because it was believed to have "little or no tax due" . In-business taxpayers must have timely deposited, filed, and paid all required employment tax returns for the two (2) preceding quarters prior to filing the offer and must be current with federal tax deposits for the quarter in which the offer was submitted. An individual taxpayer should not be considered an in-business taxpayer because he owns or controls a corporation that is not in compliance. IRM 5.8.7.6(5), Rejection, discusses the criteria for possible rejection of an offer from such an individual if a related entity is not in compliance.

      Note:

      Generally speaking, IRM 5.1.11.1.3(2), Delinquent Return Program, only requires employees to conduct a compliance check to confirm and document all IMF tax returns were filed for the preceding 6-year period. The only exception would be if fraud were discovered during the course of the investigation. Even then it should be extremely rare to go beyond 6 years.


      IRM 5.1.11.4, Cases Requiring Special Handling, discusses enforcement criteria, which states that if the taxpayer refuses to file, neglects to file, or indicates an inability to file, then the employees should determine to what extent enforcement should be used (e.g. summons, 6020(b), referral to Exam, or field, etc.). Filing requirements will normally be enforced for a 6-year period, which is calculated by starting with the tax year that is currently due and going back 6 years.

       

    2. Taxpayer in Bankruptcy — An offer will not be considered during a bankruptcy proceeding. See IRM 5.8.10.2, Bankruptcy.

      Note:

      IRM 25.17.4.7, Offers-in-Compromise and Bankruptcy (09–01–2004) , states that "administrative and legal problems would be created if a tax liability was simultaneously the subject of a court-supervised bankruptcy case and the administrative offer-in-compromise process." Therefore, it is the policy of IRS that an offer will not be considered if a taxpayer is in bankruptcy. Offer materials including financial information should be forwarded to the Insolvency unit assigned to the bankruptcy.

       

    3. Taxpayer did not submit the application fee with the offer — The application fee of $150 or the signed Form 656-A, Income Certification for Offer in Compromise Application Fee, must be submitted with each Form 656. No application fee is required for offers filed solely on the basis of Doubt as to Liability (DATL).

      Note:

      The Form 656-A applies only to individual taxpayers.

       

     

  2. No deviations from or additions to processability criteria may be made without written authorization from the Headquarters Office.

  3. An offer cannot be returned for the sole reason that the cost of an investigation may exceed the amount offered.

5.8.3.4.2  (09-01-2005)
Determining Processability for Appeals Collection Due Process Offers

  1. Apply the same processability criteria as outlined in IRM 5.8.3.4.1, Determining Processablity, but do not load these offers on the Automated Offer in Compromise (AOIC).

    Note:

    If Collection files a lien while an offer is being investigated, and the taxpayer files a Collection Due Process (CDP) request because of that lien and the CDP remains open, the offer will become the jurisdiction of Appeals. Collection cannot work any offer that has an open CDP case. Appeals may require the assistance to complete the investigation on complex cases. In those cases, an Appeal Referral Investigation (ARI) may be issued to the field.

     

  2. Appeals will provide Centralized Offer in Compromise (COIC) with both processable and not processable determination letters containing all necessary information, including the Appeals contact information. It is the responsibility of COIC to sign, date, and mail the applicable letter based on the processability determination.

    If… Then…
    The offer is not processable and a remittance was attached Prepare the not processable letter and the Form 656 to mail to the taxpayer in accordance with the procedures in IRM 5.8.3.5.1(5), Processing Application Fees. Fax a copy of the non-processable letter to the Appeals employee.
    The offer is not processable and no remittance was attached Prepare the not processable letter and the Form 656 to mail to the taxpayer in accordance with procedures in IRM 5.8.3.5.1(5), Processing Application Fees.
    If the offer is processable and a remittance is attached
    • Access the "Appeals Fee Screen" application of AOIC and input the fee data.

    • Write the application fee serial number on the upper left corner of the remittance.

    • Prepare the Form 13479, COIC Application Fee Tracking Report, in accordance with IRM 5.8.3.5.1(3).

    • Mail the processability letter to the taxpayer.

    • Send a copy of the letter and the offer package to the designated Appeals employee on a Form 3210, Document Transmittal.

    If the offer is processable and no remittance is attached
    • Mail the processability letter to the taxpayer.

    • Send a copy of the letter and the offer package to the designated Appeals employee on Form 3210, Document Transmittal.

     

  3. Offers submitted directly to the Compliance employee, are occasionally identified as having an open Collection Due Process (CDP) control. When this occurs, the Centralized Offer in Compromise (COIC) site CDP coordinator will research the Appeals Centralized database System (ACDS) to determine:

    • If the CDP is still open, and

    • If a determination letter has been issued.

    If ACDS research indicates that there is an open CDP, contact the assigned Appeals/Settlement Officer (AO/SO) to determine the status of the CDP hearing.

    Note:

    If the CDP determination letter has not been issued or a withdrawal has not been signed and dated, the offer is considered to still be open and under the jurisdiction of Appeals.

     

    If… Then…
    It is determined that the case is under appeals jurisdiction and the CDP condition is identified while the offer is still in "U" (undetermined) status on AOIC
    • The COIC site CDP coordinator will advise the AO/SO of the processability determination.

    • The AO/SO will generate and transmit via encrypted E-mail to the COIC site CDP coordinator the appropriate appeals processable and not processable letters.

    • The COIC site will delete the offer record from AOIC and load the fee information to the Appeals application fee screen of AOIC.

    • The COIC site will follow the procedures in IRM 5.8.3.4.2(2) to process the letter and application fee.

    • COIC will:
      (1) Change the offer number on the Form 13479, COIC Application Fee Tracking Report, to the Appeals application fee serial number.
      (2) Contact Receipt & Control or the mail team to change the number on the corresponding remittance.

    It is determined that the case is under Appeals jurisdiction but the CDP condition is identified after the offer has already been deemed processable by COIC
    • COIC will:
      (1) Delete the offer record from AOIC.
      (2) Load the fee information to the Appeals application fee screen on AOIC.

     

  4. When an offer is received in conjunction with a CDP and is deemed to be processable, the COIC site will input the Transaction Code (TC) 480 on all tax periods relating to the offer submission. This includes the input of a TC 480 on all balance due periods not specifically listed on the Form 656. It will be the responsibility of Appeals to perfect the offer document.
    COIC will advise the Appeals/Settlement Officer (AO/SO) when it is necessary for the Appeals employee to secure additional Form(s) 656 and/or application fee(s) prior to investigation by generating the letter identifying " Option Y" criteria. See IRM 5.8.3.7, Forms 656 Application Fee Requirements and Perfection, for examples of these situations. The COIC site will prepare the Form 3210, Document Transmittal, for transmittal of the processable offer back to Appeals. The Form 3210 will include the following information:

    • List the specific periods with the TC 480.

    • Identify an "Option Y" condition.

     

    Note:

    It will be the responsibility of Appeals to resolve each TC 480 (e.g., input of TC 481, 482, 483) after Appeals concludes the offer investigation.

     

5.8.3.4.3  (09-01-2005)
Exception Processing for Offers in Compromise Investigations Involving Taxpayers in Combat Zones

  1. The following procedures are instructions on handling those taxpayers identified as being located in a "Combat Zone" (CZ) area. This determination should be based on correspondence, case history entries, or telephone contact. Relief provisions for extensions of deadlines are provided to taxpayers located in the designated CZ areas; such as, a contingency operation designated by the Department of Defense (DOD), a qualified hazardous duty area as defined by Congress, or direct support of military operations in a combat zone certified by the DOD. The relief provisions are also applicable to any support personnel on official duty in the CZ; such as, Merchant Marines serving aboard vessels under the operational control of the DOD, Red Cross personnel, accredited corespondents, and civilian personnel acting under the direction of the U.S. Armed Forces in support of those forces.

  2. Offers that are received and deemed not processable should be worked following standard procedures. If any of the following situations exist, exception processing should be followed:

    • Offers that are received and deemed processable;

    • Offers in which a Combo Letter was issued and Combat Zone notification is received after the letter was issued;

    • Offers in which a determination was made to accept, return, or reject the offer; or

    • Offers in which a Return or Rejection Letter was issued prior to the CZ notification.

     

  3. In all of the situations identified in IRM 5.8.3.4.3(2) above, the following actions should be taken:

    • Prepare the Form 3244, Payment Posting Voucher , or Form 4844, Request for Terminal Action , requesting input of Transaction Code (TC) 500 Closing Code (CC) 56 on the taxpayers account. Use the current date for the incoming call or the IRS received date for the correspondence. The case should be suspended for 120 calendar days without taking any further action and should be reassigned on the Automated Offers in Compromise (AOIC) system to a designated or locally designated assignment number. Management should utilize the AOIC Follow-up Screen to monitor the progress on the case until the TC 500 is reversed.

    • The offer investigation may continue if there is a Power of Attorney or in the case of a joint offer, the spouse is able and willing to provide all substantiation.

     

  4. The Service established an E-mail site at combatzone@irs.gov , which can be used by military personnel, support personnel, and their families to contact the IRS.

5.8.3.5  (09-01-2005)
Processing Application Fees

  1. The following situations assume that the taxpayer has met the processability criteria for compliance and the Form 656, Offer in Compromise, and Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or Form 433-B, Collection Information Statement for Business , as appropriate, were submitted:

    If you receive a… Then…
    Processable Form 656 and the $150 application fee Complete the AOIC Application Fee screen and Form 13479, COIC Application Fee Tracking Report, as described in IRM 5.8.3.5.1 below.
    Processable Form 656 with a signed Form 656-A certification (instead of the $150 fee) Complete the AOIC Application Fee screen and input "LI" in the "Waiver Criteria" field.
    Processable Form 656 from an individual taxpayer with both a $150 application fee and a signed Form 656-A certification Complete the AOIC "Application Fee" screen and the Form 13479, COIC Application Fee Tracking Report, to treat the $150 as the application fee.
    DATL offer for a TFRP only liability with a separate application fee Return the $150 fee using combo letter "A" and optional combo letter paragraph "AM" .
    DATL offer for a TFRP only liability with a single remittance that represents both an application fee and a deposit Apply the entire amount as a deposit to the offer. Complete the Form 13479, COIC Application Fee Tracking Report, as described in IRM 5.8.3.5.1 below.
    Processable offer and one undesignated remittance greater than the $150 and there was no indication how to apply the funds. (i.e., TP did not specify where the money was to be applied). Treat $150 of the remittance as the application fee and apply the balance as a deposit to the offer. Complete the Form 13479, COIC Application Fee Tracking Report, as described in IRM 5.8.3.5.1 below.

     

5.8.3.5.1  (09-01-2005)
Completing the Form 13479, COIC Application Fee Tracking Report

  1. Offers with remittances will be batched with the Form 13479, COIC Application Fee Tracking Report, for processability determinations. Each separate remittance will appear on its own line of the Form 13479. Offers submitted with separate remittances for the application fee and a deposit will have entries on two lines, while an offer submitted with a single remittance that combines the application fee and deposit will have only one entry. Batch integrity must be maintained throughout the processability determination.

    • Cases with deposits and/or tax payments must have a processability determination made and the remittance deposited within 48 hours of the IRS receipt date (unless "misdirected" ).

    • Those offers received with application fees only must have a processability determination made within 14 calendar days of the IRS receipt date.

    Upon assignment to the Process Examiner (PE), the manager will ensure that the "PE Received Date" and " PE COIC #" fields on the Form 13479 are accurately completed.

  2. The last four (4) columns of the Form 13479 are used to document the decision to process or return the remittance. They are:

    • "Deposit 4710/3244 Amt."

    • "Application Fee Amt."

    • "Return Non-Negotiable"

    • "Return Negotiable"

     

  3. Form 13479 should be completed as follows:

    If Processable, and… Then…
    An Application Fee was submitted Enter $150 in the "Application Fee Amt." column.
    An offer deposit was submitted Enter the amount of the deposit in the "Deposit 4710/3244 Amt" column and prepare the Form 2515, Record of Offer in Compromise.
    A tax payment (e.g., installment agreement (IA) payment, estimated tax (ES) payment) was submitted Prepare the Form 3244, Payment Posting Voucher, for the amount and application of the payment and enter the amount in the "Deposit 4710/3244 Amt. " column.

     

  4. If the offer has one remittance for any combination of the above three payments enter the appropriate amounts in the respective columns and ensure the amounts entered equal the "Check Amount" column.

  5. If the offer is not processable take one of the following actions based on the type of remittance received:

    If Not Processable, and… Prepare the offer package to be returned and…
    There is an application fee or deposit to be returned to the taxpayer with the Not Processable Return letter
    1. Date and sign the Return letter,

    2. Put the offer package and the letter in an addressed envelope to be returned to the taxpayer. Do not seal the envelope.

    3. Close the offer with a disposition code "10" on AOIC.

      Note:

      This procedure does not apply to Appeals Collection Due Process (CDP) offers.

       

    4. Annotate the amount of the remittance under the"Return Negotiable " or "Return Non-Negotiable" column, as appropriate, to indicate that the remittance is to be sent back to the taxpayer.

    A separate tax payment (e.g., IA or ES payment) was submitted
    1. Prepare the Form 3244, Payment Posting Voucher , for the amount and application of the payment,

    2. Enter the amount of the payment in the "Deposit 4710/3244 Amt." column.

    One remittance was submitted that combined any tax payment (e.g., IA or ES payment) with an application fee or deposit amount
    1. Apply the entire remittance as the tax payment by preparing a Form 3244 and enter that amount in the "Deposit 4710/3244 Amt." column.

     

  6. Processability determinations must be made for all offers listed on the Form 13479 before returning it to Receipt and Control for processing of the remittances. When all of the determinations have been made and the Form 13479 is complete, send the original with all Forms 2515, 3244, letters, and envelopes to Receipt & Control for processing of the checks. Acknowledgement of the receipt of the Form 13479 must be secured from the Receipt and Control/mail team employee by having them place their initials in the upper right hand corner of the Form 13479.

    • Personal checks will be stamped non-negotiable and enclosed in the return offer package to the taxpayer.

    • It is the responsibility of Receipt and Control to return all " negotiable" remittances back to the taxpayer in accordance with Receipt and Control procedures.

     

5.8.3.6  (09-01-2005)
Dishonored Application Fee Payments

  1. Accounting Branch will hand carry or fax copies of dishonored application fee checks to the Centralized Offer in Compromise (COIC) site that originated the Form 13479, COIC Application Fee Tracking Report . Upon notification of a dishonored application fee payment, the site will determine the current Automated Offer in Compromise (AOIC) offer assignment by querying the offer number annotated on the upper left hand corner of the check. For Appeals Collection Due Process offers, see IRM 5.8.3.6.1(3), below.

    Note:

    Due to AOIC programming, only the assigned office can gain access to the "Action Cd" field of the "Application Fee" screen to input the dishonored check status.

     

5.8.3.6.1  (09-01-2005)
Centralized Offer in Compromise Procedures

  1. If the offer is still assigned to a Centralized Offer in Compromise (COIC) site, COIC will immediately cease processing the associated offer, update the Automated Offer in Compromise (AOIC) "Application Fee" screen by entering "I" in the " Action Cd" field and return it to the taxpayer, utilizing letter option "RET-AA" .

  2. If the offer is assigned to an Area office, COIC will telephone the employee assigned the offer (or the manager of the assigned function, if no individual is specified on AOIC) to advise of the dishonored payment. Once contact is made with the assigned area office employee or manager, COIC will fax a copy of the dishonored check to include in the case file and document AOIC to indicate the information was communicated and to whom.

  3. If the case was processed as an Appeals Collection Due Process (CDP) offer, COIC should query the Appeals Centralized Database System (ACDS) to determine which Appeals employee is assigned the case. COIC will telephone the Appeals employee to advise of the dishonored check and fax a copy to include in the Appeals case file. COIC will update the "Appeals Fee Screen" application of AOIC by entering "I" in the "Action Cd" field.

    Note:

    Appeals Collection due Process (CDP) cases can be identified by the application fee number annotated on the upper left corner of the check.

     

  4. If notification of the dishonored check occurs after the offer was closed on Automated Offer in Compromise (AOIC), the designated AOIC liaison within the COIC site, will contact the Headquarters AOIC analyst to correct the application fee record of the closed offer.

5.8.3.6.2  (09-01-2005)
Area Office Procedures

  1. Upon notification by the Centralized Offer in Compromise (COIC) site of a dishonored fee payment, the Offer Specialist (OS) (or manager of the assignment function, if the offer is not assigned to an individual) will immediately:

    • Cease processing of the associated offer.

    • Update the AOIC Application Fee screen by entering "I" in the "Action Cd" field

    • Return the offer to the taxpayer utilizing letter option " RET-AA" .

     

5.8.3.6.3  (09-01-2005)
Notification of Dishonored Application Fee Check After Issuance of the Rejection Letter

  1. If notification of the dishonored OIC application fee check occurred after issuance of a rejection letter, in addition to procedures in IRM 5.8.3.6.1 and 5.8.3.6.2 above, the employee should:

    • Date the return letter 31 days from the date of the rejection letter.

    • Include the open paragraph "RET-M" with the following language: "As a result, your request for appeal has been dismissed. "

      Note:

      This should only be used in those cases where a request for an Appeal was received within the 30-day appeal period.

       

    • Close the case on AOIC as a return using the mail date of the return letter and AOIC final disposition code "10."

     

5.8.3.7  (09-01-2005)
Forms 656 Application Fee Requirements and Perfection

  1. Treasury Regulations §300.3 requires taxpayers to submit one fee for each Form 656, Offer in Compromise, received, if no Form 656–A, Income Certification for Offer in Compromise Application Fee, was submitted.
    The table below is intended to assist in identifying a processable offer for application fee purposes and provide guidance to advise the taxpayer when more than one Form 656, application fee, and/or Form 656-A should be submitted. In the following scenarios the status of the taxpayer is not relevant (e.g. married, separated or divorced). The general rule is that there should only be as many Forms 656 as there are entities seeking to compromise. The following scenarios assume all processability criteria (other than for the application fee) are met.

    Scenario Procedures
    1) Two TPs have joint liabilities only. The TPs jointly submit one Form 656 and one $150 application fee. One offer was submitted therefore one fee is required.
    2) Two TPs have joint liabilities only. The TPs submit two Forms 656 but only one $150 application fee without a signed Form 656-A. Two offers were submitted; therefore, two fees are required.
    The Process Examiner (PE) must secure a copy of the remittance to make the appropriate determination as indicated below.
    • If it can be determined which TP paid the application fee (i.e., a personal check drawn on the account of one of the taxpayers), the offer from the TP that paid the fee is processable. The second offer should be returned as not processable because the TP did not submit the required processing fee.

    • If each TP contributed a portion of the $150 fee (e.g., each submitted a personal check for $75), then neither TP has paid the appropriate fee and both offers should be returned as not processable.

    • If it cannot be determined which TP paid the application fee treat it as though half were submitted by each individual. Return both offers as not processable, enclose the fee payment with the not processable return letter addressing it to the party with the primary SSN on the liability.

    3) Two TPs have separate liabilities only. The TPs submit two Forms 656 but only one $150 application fee without a signed Form 656-A. Same as Scenario 2
    4) Two TPs have joint liabilities and one or both of the TPs also have separate liabilities. The TPs submit one Form 656 listing both the joint and separate liabilities and only one $150 application fee without a signed Form 656-A. Although it is the policy of the Service to require separate offers when TPs have both joint and separate liabilities, the offer submitted in this scenario is processable. However, the Service can require the TP to perfect the original offer by submitting a new offer to separate the liabilities. In this instance, the new offer will require a second fee.
    When requesting the perfection of an offer that requires the submission of a second offer, send the TPs two Forms 656:
    • Prepare an "amended/revised" Form 656 by completing items 1 through 5 with the entity and tax liability information of the individual with the primary SSN on the joint liability. Include both joint and separate liabilities in item 5. Note the original offer number on the top of the "Amended/Revised" Form 656.

    • Prepare a second Form 656 by completing items 1 through 5 with the entity and tax liability information of the individual with the secondary SSN on the joint liability. Include both joint and separate liabilities in item 5. Annotate the top of the Form 656 in red "Related to Offer Number ________" , inserting the number of the original offer. This will help identify that the offer submitted is in response to a perfection request.

      Note:

      Clerical units should be aware that new offers received in the PO Box designated for response correspondence must keep all correspondence and attachments associated with the offer to assist in the identification of the related offer.

       

    • Include Option "Y" in the combo letter:

    • Include Form 656-A and the a copy of the original Form 656 with the combo letter

    If the TPs refuse to perfect the offer, the Service will return the offer without any further consideration.
    5) One Form 656 is submitted that includes both corporation or partnership and individual liabilities, but only one $150 application fee without a signed Form 656-A for the individual. Follow the procedures outlined in Scenario 4 above.
    6) Two taxpayers have joint liabilities and either or both of the taxpayers also have separate liabilities. The taxpayers submit two Forms 656, listing the joint liability on one and the separate liability on the other, but only one $150 application fee. Since the taxpayers submitted two offers, they require two fees. Only load the joint Form 656, treating it as processable and including the separate liabilities on the MFT screen. Follow procedures in Scenario 4 above.

     

5.8.3.8  (09-01-2005)
Centralized Offers in Compromise Processability Determinations

  1. Centralized Offer in Compromise (COIC) sites determine offer processability. To accomplish this Process Examiners (PE) must take the following actions:

    1. Check IDRS to determine if the taxpayer is currently in compliance or is in bankruptcy.
      • This includes checking all Social Security Numbers (SSN), Employer Identification Numbers (EIN), and Individual Taxpayer Identification Numbers (ITINs) known or found for the taxpayer. At a minimum check the following IDRS command codes: ENMOD, INOLES, CFINK, BMFOLI, SUMRY, IMFOLI. If any data is found, print and include it in the file. Also, research IDRS command codes TXMOD and FFINQ for additional data, but it is not necessary to include printed copies in the file.
      • Research the Master File to determine if the taxpayer has any unfiled tax returns. Review the offer package to determine if documentation submitted by the taxpayer or another Service employee indicates that the taxpayer has recently filed or was not required to file any delinquent returns. A delinquency check notification or taxpayer delinquency investigation (TDI) does not have to exist to determine if a taxpayer has unfiled delinquent returns.

      Note:

      If a delinquent return was recently filed and has not yet posted to IDRS, a copy of the return is sufficient verification of compliance.

       

    2. Check for any freeze codes such as: -Y, -W, -Z, -A, -V, -L that may require special action. Refer to local guidelines.

    3. Verify that the taxpayer has submitted the appropriate Form 656, Offer in Compromise, Form 433–A, Collection Information Statement for Wage Earners and Self-Employed Individuals , and/or Form 433-B, Collection Information for Businesses.

    4. Verify that the taxpayer has submitted the application fee (or signed Form 656-A, Income Certification for Offer in Compromise Application Fee) for each offer submitted.

    5. During the internal analysis, AOIC should be documented of any findings.

     

  2. Review Automated Offer in Compromise (AOIC) and the history for any previous offers to determine if the offer was submitted "solely to delay collection." See IRM 5.8.3.19, Offers Submitted Solely to Delay Collection.

5.8.3.9  (09-01-2005)
Not Processable

  1. When returning the offer as not processable, the return letter will specify all reasons for the determination.

  2. If the offer is not processable:

    1. Stamp the Form 656 "RETURN" in red (or circle the date in red if a red ink stamp is not available) and write the date that the offer was determined to be not processable.

    2. Cross out all IRS received dates with a red"X."

    3. Prepare the return letter with all applicable reason code paragraphs.

    4. In addition to identifying all of the reasons for the determination, also address the issue of the combined joint and separate liabilities, if appropriate. For example, individual and corporate or partnership liabilities on one Form 656. In those cases, include Option "Y" in the return letter.

    5. Complete the Form 13479, COIC Application Fee Tracking Report, if applicable.

    6. Update the history specifying the reason(s) for the not processable determination.

    7. Do not sign the Form 656 as pending.

    8. Update AOIC "Proc Cd" field to "N" (not processable).

    9. Managers and journey level Process Examiners (PE) may sign and date the letter and close the case on AOIC.

    10. Send the Form 656, the Return letter, Publication 1 and Publication 594 to the taxpayer along with all other documents originally sent. If a Power of Attorney (POA) is present, send the representative a copy of the letter. If disclosure issues exist, use the appropriate paragraph to indicate this in the return letter, and do not send a copy to the representative.

    11. If a Form 656 was forwarded by a Revenue Officer (RO) and is not processable, the COIC site should also forward the Form 657 and a copy of the " not processable" letter to the approving official of the Form 657.

     

  3. Caution should be exercised to ensure that no IDRS prints or other internally generated documents are sent to either the taxpayer or the Power of Attorney (POA). All internal documents should be destroyed. Nothing is required to be maintained in local closed files on these cases.

  4. If the offer was originally determined processable and the application fee was deposited, but it was later concluded that this determination was made in error, processing should stop. The case should be closed using not processable procedures defined above. In these cases, it is important to ensure the "N" (not processable) is input on AOIC to reverse the Transaction Code (TC) 480(s). This will result in the generation of a TC 483 posting to the appropriate modules, and a refund of the $150 application fee.

5.8.3.10  (09-01-2005)
Processable

  1. An offer is considered pending when a delegated IRS official signs and dates the Form 656, Offer in Compromise, in the appropriate section. This date is the official offer pending date.

    Note:

    The pending date entered on AOIC must match the date the delegated official signed the Form 656. This date must also match the Transaction Code (TC) 480 date when it posts to IDRS.

     

  2. If the offer is processable:

    1. Sign and date the waiver on Form 656 (item 11).

    2. Change the "Proc Cd" to a "Y" (processable).

    3. Complete the AOIC Application Fee Screen.

    4. Complete the MFT and "Terms" screen on AOIC.

      Note:

      If tax periods are in status 60, 61, or 53 (except for those status 53 modules with Closing Code "03" [unable to locate] or Closing Code "12" [unable to contact]) remove the "Y" on each tax period on the MFT screen. DO NOT change the status of those accounts, unless the taxpayer has defaulted the installment agreement.

       

    5. On all IMF cases enter "P" if the offer is for the primary taxpayer or the controlling taxpayer identification number (TIN) on the entity, enter"S" if the offer is for the secondary taxpayer , or enter "B" if both husband and wife are making a joint offer.

      Note:

      If only one party of a joint liability is submitting the offer, remove the "Y" from the MFT screen. This will take the case out of Status 71.

       

     

  3. Communication with the taxpayer and/or authorized representative may be necessary to perfect the offer while it is pending. This communication may be completed by letter or personal contact.

    If processable and… Then…
    The offer requires perfection due to an insufficient number of Forms 656 and application fees Except for examples in IRM 5.8.3.7, Form 656 Application Fee Requirements and Perfection, send the combo letter to request the following information:
    • Correct number of Forms 656 and fees (Option "Y" perfection),

    • Any required financial substantiation,

    • Any additional Form 656 perfection, including incorrect or old Form(s).

    • Assign to "5100"

    The offer does not need Option "Y" perfection and falls into the category for direct field transfer. See IRM 5.8.2.2, Initial Receipt of Offers. Reassign on AOIC to the appropriate area office.
    The offer does not need Option "Y" perfection and qualifies under the " Screen For Obvious Full Pay" procedures. See IRM 5.8.3.12, Screen for Obvious Full Pay. Process under "Screen For Obvious Full Pay" Procedures.
    The offer does not need Option "Y" perfection and does not qualify under "Screen For Obvious Full Pay" procedures, but all required financial substantiation is not attached or needs Form 656 perfection before beginning the investigation.
    • Assign to "5100"

    • Send the combo letter to address all perfection issues and request the required substantiation, including incorrect or old form(s).

    The offer does not need Option "Y" perfection and does not qualify under "Screen For Obvious Full Pay" procedures and has attached all required substantiation except for proof of payment of certain expenses; such as, current real estate, or motor vehicle loan balances.
    • Send the combo letter to request substantiation and Form 656 perfection, if appropriate, including incorrect or old Form(s).

    • Check internal verification sources,

    • Assign the case to"5300" .

      Note:

      If the taxpayer has provided a substantial amount of the information and a determination can be made, assign the case to 6000.

       

    The offer does not need Option "Y" perfection and does not qualify under "Screen For Obvious Full Pay" procedures and is a total submission.
    • Send the combo letter, Option "A."

    • Check internal verification sources.

    • Assign to "6000."

     

  4. If an offer was submitted by an Revenue Officer (RO) and it is processable, but the RO has determined that the offer was submitted "solely to delay collection" , the COIC site will contact the originating RO to advise that the return letter has been issued. Unless a jeopardy situation exists, the RO must wait for COIC notification that the return letter has been issued before taking any collection enforcement action. See IRM 5.8.3.19, Offers Submitted Solely to Delay Collection, for delegated approval authority.

  5. COIC will request Transaction Code (TC) 480 and Status 71 through the AOIC system. However, there may be situations when the Status 71 will not generate (e.g. MFT 31 modules created prior to January 2005, imminent statute, etc.). In those cases, the field Offer Specialist may request input of the TC 470 with Closing Code (CC) 90 to suspend collection activity.

5.8.3.10.1  (09-01-2005)
Erroneous Processability Determinations

  1. The Service only collects the application fee for processable offers; therefore, fees associated with offers that are initially deemed processable but subsequently determined to be not processable must be returned to the taxpayer.

  2. When an erroneous processability determination is corrected prior to forwarding the related application fee for deposit and it is still in the custody of Receipt and Control or the mail team, the COIC sites should follow campus procedures designed to include the remittance in the not processable return letter and to correct the AOIC fee screen record.

5.8.3.10.2  (09-01-2005)
"Application Fee Refund/Apply Listing" Validation

  1. When an erroneous processability determination is corrected after forwarding the related application fee remittance for deposit, the COIC sites will need to determine whether the remittance has been deposited. An " Application Fee Refund/Apply Listing" should be generated from AOIC to identify application fees that were initially determined to be processable, but later determined to be not processable. Generation of this listing is required in order for the COIC site to verify and authorize a manual refund.

    Note:

    The COIC sites should request the Monitoring Offer in Compromise (MOIC) function to generate the "Application Fee Refund/Apply Listing" on a monthly basis.

     

  2. Generally, when an offer is deemed "not processable" , the Service includes the taxpayers remittance with the return disposition letter. However, depending on the elapsed time between inputting a processability change on AOIC from a "YES" to a "NO" , the Service may have already deposited the related application fee.

  3. To determine whether or not manual refunds of the application fee should be issued, research the completed Form 13479, COIC Application Fee Tracking Report, for those offers to determine whether the application fee was deposited by the Service or returned to the taxpayer.

    Caution:

    Thorough research and care is required when determining which offers on the "Application Fee Refund/Apply Listing" should receive manual refunds.

     

    If… Then…
    Research indicated that the application fee was returned to the taxpayer(s) The designated COIC site AOIC liaison should contact the Headquarters AOIC analyst to make the necessary adjustment to the application fee information to remove it from the "Refund/Apply Listing" . This action will eliminate the potential for the taxpayer to receive an erroneous refund.
    Research indicated that the application fee was deposited Contact the Monitoring OIC (MOIC) function co-located with the COIC site and request a manual refund be generated to the taxpayer(s).

     

  4. To request the Monitoring OIC (MOIC) function to issue manual refunds, the COIC sites must prepare a memorandum that includes:

    • The offer number

    • The taxpayer(s) name

    • The taxpayer(s) identification number (TIN)

     

  5. Records that support the COIC sites decision to either remove the offer record from the "Refund/Apply Listing" or to issue a manual refund must be retained for one year. At a minimum, the file should consist of:

    • Copies of the "Refund/Apply Listing" .

    • Copies of the Form 13479, COIC Application Fee Tracking Report.

    • Any other supporting documentation necessary to support the decision; including, but not limited to the Remittance Processing System daily remittance register.

     

5.8.3.11  (09-01-2005)
Types of Perfection

  1. Certain perfection errors must be corrected before beginning the offer investigation. The combo letter on the Automated Offer in Compromise (AOIC) system is designed to communicate with the taxpayer and their representative to request the necessary corrective action. If there is no response to the request letter, return the offer to the taxpayer as not perfected. A return for failure to perfect an offer does not require a Form 1271, Rejection or Withdrawal Memorandum. The taxpayer has no appeal rights when the offer is closed as a return. The following errors must be corrected before beginning the investigation:

    • The taxpayers name, physical address or taxpayer identification number (TIN) is missing or incorrect and cannot be determined from IDRS or other documents submitted with the offer.

    • The offered amount is blank or zero.

    • No tax liability has been assessed or pending and the amount(s) can not be determined.

    • Insufficient number of Forms 656 and application fees submitted.

     

  2. When sending a combo letter to perfect the errors listed in (1) above or to request financial substantiation, also include a request to correct the following errors.

    Note:

    If acceptance of the offer is considered and a combo letter was not sent but the errors listed below exist, they must be corrected prior to the recommendation to accept the offer.

     

    • The offer was submitted on an obsolete Form 656.

    • The Form 656 is not a verbatim duplicate. Such as, preprinted terms of the Form 656 are altered, deleted or missing.

    • An amount of money is offered, but the payment terms are not specified.

    • The taxpayer(s) signature is missing on Form 656.

    • Form 433–A and/or 433–B is incomplete.

    • The taxpayer has included a period(s) for which no amount is due.

     

  3. If a period with an amount due is missing from the Form 656, but all periods due can be determined from IDRS or other documents submitted with the offer, add the missing period(s) to the AOIC MFT screen. Do not add the missing period(s) to the Form 656 unless contact is made with the taxpayer.

    When a taxpayer has included a period(s) for which there is no apparent amount due, do not add the period(s) to AOIC. Contact the taxpayer to determine if any issues are pending that may result in additional tax. If there is no tax due after contact with the taxpayer, document the history and do not add the period(s).

    Note:

    Contact may be made by telephone or by sending the AOIC combo letter requesting the inclusion of the missing period(s) or the deletion of the no tax due period(s) on the amended Form 656. If the taxpayer agrees to the addition of the missing period(s) or the deletion of the no tax due period(s), the history must document the method of agreement by the taxpayer.

     

  4. If the taxpayers name, physical address, or TIN is missing or incorrect and the correct information can be located on IDRS or other documents submitted with the offer, input the correct information on AOIC.

  5. If the basis for compromise is not indicated, but it can be determined by reviewing the package, begin the investigation.

    Note:

    The offer cannot be accepted unless an amended Form 656 is signed, correcting all errors listed in (1) and (2) above.

     

5.8.3.12  (09-01-2005)
Screen For Obvious Full Pay Processing

  1. Taxpayers may submit an offer to compromise the liabilities based on Doubt as to Collectibility (DATC), yet indicate on their application an ability to pay the account in full. These cases, once determined to be processable, will be screened out. Absent any special circumstances they will be rejected with no further investigation or verification. The taxpayer will be directed toward the appropriate resolution for the delinquency. The rejection letter will be the first communication with the taxpayer. A decision to reject with appeals rights is adequately justified by the taxpayers self-disclosed ability to pay in full.

  2. For processable offers one of the first considerations is to determine if the taxpayer can pay in full. The following initial review should be conducted by the Centralized Offer in Compromise (COIC) site on all processable offers to make that determination.

    • Complete the Full Pay worksheet using the taxpayers figures only, as reflected on the CIS.

    • Do not adjust any asset values or apply necessary expense standards.

    • If the amount shown by the taxpayer on the CIS reflect that the taxpayer can fully pay the tax due via either liquidation of assets or on an installment agreement, assign the offer to AOIC designation "6900."

      Note:

      If special circumstances or Effective Tax Administration (ETA) conditions are presented by the taxpayer, assign the case to an Offer Examiner (OE) for further evaluation and consideration.

       

     

5.8.3.13  (09-01-2005)
Centralized Offer in Compromise Case Building and Perfection Procedures

  1. For all processable offers not directly transferred to an Area office or for those qualifying under the "Screen for Obvious Full Pay " procedures, the Collection Information Statement (CIS) should be reviewed to verify the taxpayer has submitted all supporting documents.

    • Prepare the combo letter using the paragraphs that address the missing substantiation or incomplete documents as well as any Form 656 perfection issues. Include Publications 1 and 594. Document the AOIC history to summarize the required substantiation submitted with the offer as well as all perfection issues.

    • A copy of the signed and dated letter must be retained in the file.

      Note:

      All combo letters will be postdated five (5) calendar days. Schedule follow up for the 45th day after the date of the letter. Thus, at least 50 calendar days (5 postdate plus 45 calendar days from the date of the letter) would have elapsed before following up.

       

    • Mail the letter to the taxpayer and representative, if applicable. If a disclosure issue exists, use the appropriate paragraph to indicate this in the combo letter, and do not send a copy to the representative.

    • Envelopes containing combo letters including Options "B " , "C" , or "D" must be stamped or otherwise marked "URGENT - TIME SENSITIVE" and include Notice 1326, Offer in Compromise (OIC) Applicant ALERT.

    • Document the mailing date of the letter and a follow up date on AOIC.

    • Assign the offer to AOIC designation "5100" or "5300" , as identified in IRM 5.8.3.10(3) above.

     

  2. An analysis of the information provided on the Collection Information Statement (CIS) or any other documentation received should be made prior to issuing a document request or combo letter.

    Note:

    The letter(s) should only request information necessary to make a reasonable collection decision.

     

  3. The following information is considered to be necessary to allow the Offer Examiner (OE) the ability to make a determination. If the following expenses were claimed on the CIS but substantiation was not included, supporting documentation should be requested.

    • Income statements for the last three months (a current year-to-date statement is acceptable as long as it represents at least three months).

      For those taxpayers on Social Security or a fixed pension or retirement where the monthly income does not fluctuate, it may only be necessary to secure one monthly statement to verify the amount of income. In those cases, verification of income may be available through secured bank statements.

      Note:

      If applicable, substantiation for three months of income statements for any not liable person should also be requested in order to determine taxpayers share of living expenses. See IRM 5.8.5.5.4, Shared Expenses, for additional information on the treatment of shared expenses.

       

    • Bank statements for the last three months.

    • The current available cash value or loan value of 401(k), profit sharing or other retirement plans, and the current balance due on any existing loans against that plan. See IRM 5.8.5.3.8, Retirement or Profit Sharing Plans, for more information on valuing a Retirement or Profit Sharing plan.

     

  4. Substantiation should also be requested for the following information; however, if the taxpayer fails to provide the supporting documentation, the expense should be disallowed and a determination made based on all other information. The following list is not all-inclusive. See IRM5.8.3.16, Analyzing Taxpayer Responses to Combo Letter.

    • Health insurance and out of pocket cost for the last three months (refer to LEM 5.3)

    • Current balance due on motor vehicle loans.

    • Court orders and proof of payment for the last three months.

      Note:

      Court orders will only be required if the payment is to be allowed in the computation of the Reasonable Collection Potential (RCP).

       

    • Current balance due on real estate mortgages

    • Child and dependent care for the last three months.

    • Other secured debt statements for the last three months.

    • Life insurance premiums for the last three months.

     

5.8.3.14  (09-01-2005)
Centralized Offer in Compromise Internal Verification Research

  1. Prior to assigning the offer for investigation internal sources must be searched.

  2. Conduct research using IDRS, the electronic locator source, state motor vehicle records, and in-house real property valuation sources, to verify claimed amounts and to identify undisclosed assets or sources of income.

  3. Generally it will only be necessary to secure motor vehicle valuations from a trade association guide on vehicle(s) that are three years old or newer and have no lien

    Example:

    When considering an offer in the year 2004, a 2001 model is considered to be three years old or newer

     

5.8.3.15  (09-01-2005)
Processing Taxpayer Responses to Combo Letters

  1. Update the Automated Offer in Compromise (AOIC) history to annotate the information and/or documents received and sign any amended or revised Forms 656 with the current date. Retain the original Form 656 and any amended Forms 656 in the file.

  2. If the determination is made to return the offer for failure to provide the requested information, use the appropriate paragraph(s) in the AOIC return letter.

    1. Retain the original Form 656, any amended Forms 656, and a copy of the return letter in the file.

    2. Cross out all IRS received dates with a red"X" . Stamp the Form 656 with "RETURN" , in red, and add the current date.

    3. Update the case history on AOIC including the reason for the return. Include a copy of the history in the file and give the file to the manager for approval.

     

    If… Then…
    The offer is assigned to "5100 " , no taxpayer response is received and the follow-up date passes Invoke the "No Reply" procedures.
    The offer is assigned to "5100 " and the taxpayer responds Associate the mail and assign to " 5500" .

    Note:

    However, if the taxpayer has substantially replied to the request, but has not provided all the information the case should be assigned to an OE for review. The OE should review the reply to determine if the information provided is sufficient to make a decision. If not, the OE should attempt one phone call to secure the missing information before returning the offer as a"No Reply" .

    The offer is assigned to "5300 " and the taxpayer has provided sufficient information to make a determination Assign to "6000" .

     

  3. Process Examiners (PE) are required to initiate the next appropriate action on cases where taxpayers have responded to the combo letter within 10 calendar days from the date the offer is assigned to the PE.

  4. If the taxpayer or their representative requests an extension of time to comply with the request for information, a reasonable amount of time should be granted. Document the Automated Offer in Compromise (AOIC) history indicating the new deadline for the response. If the taxpayer and/or their representative fails to meet the additional deadline, initiate the procedures as defined in IRM 5.8.3.17, "No Reply" Procedures .

5.8.3.16  (09-01-2005)
Analyzing Taxpayer Responses to Combo Letter

  1. The failure to provide proof of payment of any Collection Information Statement (CIS) claimed monthly expense amounts for health care expenses, court orders/court ordered payments, child/dependent care, life insurance, other secured debt, other expenses, or the failure to submit current loan balance statements for real estate mortgages, or current loan balance statements for motor vehicles will by itself not be sufficient reason to return an offer.

  2. If a court ordered payment is to be acknowledged as an expense, a copy of the court order must be secured to determine the number of months to allow for the remainder of the payments. If the court ordered payment is not to be allowed, a copy of the court order will not be required.

  3. Process Examiner's (PE) will determine if the taxpayers response or original submission statements and/or documents addressed all requested items even when it may not have specifically included the information sought by the combo letter. The failure to provide the desired information/documents will by itself not be sufficient reason to return an offer, as long as the taxpayer addressed the particular information/document requested.

    Note:

    If the taxpayer has substantially replied to the request, but has not provided all the information requested, the case should be assigned to an Offer Examiner (OE) for further review and evaluation on whether a reasonable collection potential (RCP) can be calculated. The OE should attempt one phone call to secure the missing information before returning the offer as a "No Reply"


    Below are some examples of when a taxpayer may address, while not actually providing the requested substantiation, may include but are not limited to the following:

    • Bank statements are provided , but not all pages were included or only two months were sent instead of three.

    • Wage statements are provided, but not all pages were included or only two months were sent instead of three.

    • The taxpayer indicates an inability to provide a particular requested document (e.g., court order or judgment, annual statement of Social Security annuity amount).

    • The taxpayer indicates that they did not understand the request or that all requested documentation is attached.

    • The taxpayer indicates that a non-liable person(s) has no income or refuses to provide the substantiation.

     

  4. Offers for which the Process Examiner (PE) determined the taxpayer has substantially replied and/or adequately addressed the requested information and/or documents (even if they did not specifically include them in the response), or where they failed to substantiate certain claimed monthly expenses or loan balances, will be assigned to an Offer Examiner (OE) for further consideration.

  5. If the Offer Examiner (OE) determines that the RCP calculation cannot be completed because of the missing information and/or documents, the OE will attempt to telephone the taxpayer (or representative, if applicable) to secure any needed substantiation, explaining the information is needed in order to conduct the offer investigation. If unable to contact the taxpayer by telephone after one attempt or if the taxpayer/representative is unable to provide the substantiation to the OE within five (5) calendar days (fax transmission is preferable), document the AOIC history and return the offer for failure to provide necessary information.

  6. If any of the necessary Form 656 perfection errors identified in IRM 5.8.3.11(1) above were not corrected, the offer will be returned. The following conditions assume that the response corrected any perfection errors on the Form 656.

    If the offer is assigned to "5500 " and… Then…
    The response included all required financial substantiation.
    • Check internal verification sources.

    • Assign to "6000"

    The response included all requested financial information/substantiation except proof of payment of mortgage/motor vehicle loan balance, court order, or court ordered payments.
    • Check internal verification sources.

    • Assign to"6000"

    The taxpayer substantially replied or addressed the requested items Assign to an Offer Examiner (OE) to determine if the information is sufficient to make an RCP calculation.
    The response neither included nor addressed requested income or bank statements, non-liable person, or 401(k) information. Return the offer.

     

5.8.3.17  (09-01-2005)
"No Reply" Procedures

  1. After the offer is determined processable and the combo letter has been sent, the offer should be held for the required number of days to allow the taxpayer to provide the requested information. If after the designated time period has passed and the COIC site has not received a response, an automated return process will be completed. The AOIC system will generate all the necessary letters and documents to close the case. Before closing the offer the employee must check AOIC to verify that no response was received.

    Note:

    Processable returns for "No Reply" will not be made by the Process Examiner (PE) unless the taxpayer did not submit any requested documentation and the taxpayer did not provide substantive information with the original submission. Those cases where the PE determined that the taxpayer substantially provided the information will be assigned to an Offer Examiner for a determination whether the response was sufficient to make a determination or to return the offer.

     

  2. Offers for which the Process Examiner (PE) determined the taxpayer has substantially replied and/or adequately addressed the requested information and/or documents (even if they did not specifically include them in the response), or where they failed to substantiate certain claimed monthly expenses or loan balances, will be assigned to an Offer Examiner (OE) for further consideration. The PE will not implement the "No Reply" procedures.

  3. If the taxpayer or their representative requests an extension of time to comply with the request for information, a reasonable amount of time should be granted. Document the Automated Offer in Compromise (AOIC) history indicating the new deadline for the response. If the taxpayer and/or their representative fails to meet the additional deadline, initiate the "No Reply " procedures as defined above.

5.8.3.18  (09-01-2005)
Withholding Collection

  1. Installment agreements remain in effect while the offer is pending.

  2. For offers submitted after December 31, 1999, collection by levy on property owned by the offer taxpayer is prohibited while the offer is pending unless collection is in jeopardy.

  3. The term "jeopardy" has the same definition described in IRM 5.11.3, Initial Processing of Effective Tax Administration Offers, and Policy Statement P-4-88. Collection is not considered to be in jeopardy because an undisclosed asset was discovered during the investigation.

  4. Upon receiving information that a jeopardy levy has been approved, contact the employee issuing the levy and if it is agreed that the offer was filed to hinder or delay collection follow procedures in IRM 5.8.3.19, Offers Submitted Solely to Delay Collection, below to return the offer.

  5. The prohibition on levy does not require release of a levy that was served prior to the offer submission. However, the taxpayers circumstances should be considered when making a determination to release a levy or keep it in place while the offer is pending.

  6. The prohibition on levy while an offer is pending does not extend to filing notices of federal tax lien. See IRM 5.8.4.9, Notice of Federal Tax Lien Filing, for a discussion of filing notice of federal tax lien while an offer is pending.

5.8.3.19  (09-01-2005)
Offers Submitted Solely to Delay Collection

  1. When it is determined that an offer is submitted "solely to delay collection" , the offer can be returned to the taxpayer without further consideration.

    Note:

    The term "solely to delay collection " means an offer that was submitted for the sole purpose of avoiding or delaying collection activity. See IRM 5.8.3.19.1, Solely to Delay Collection Determinations, below.

    .

  2. The Field OIC group manager and the Unit Manager at the COIC site, have delegated authority to approve returns based on "solely to delay collection" .

  3. An offer is not considered submitted "solely to delay collection" just because there is an imminent CSED issue or if an offer has been investigated and rejected and the taxpayer exercises appeal rights.

5.8.3.19.1  (09-01-2005)
Solely to Delay Collection Determinations

  1. When a taxpayer resubmits an offer that is not"materially" different from a previous offer that was considered and either rejected with appeal rights or returned, the offer may be returned as "solely to delay collection" .

    Example:

    The taxpayer fails to address the issues or defects of the previously submitted offer.

     

  2. The offer may be considered as "materially" different when:

    • The amount reflected on the re-submission is substantially similar to, less than, or the same as the prior offer and the following exists:
      1) The taxpayers financial situation has changed.

      Note:

      A change in the taxpayers financial situation may include:
      •A change in employment and/or income,
      •A change in marital status effecting future ability to pay or ownership of assets,
      •The loss of an asset that was included in the original offer investigation,
      •A change in circumstances that would affect allowable expenses and future ability to pay.



      2) The taxpayer has raised special circumstances that were not considered during the prior offer investigation.

     

  3. When the Service has accepted an offer in compromise and the taxpayer subsequently defaults on the offer agreement and then files a new offer within one year of the default, the offer may be returned as "solely to delay collection" unless the new offer indicates any of the following:

    • The current offer submission reflects special circumstances

    • The re-submission is materially different from the prior accepted and defaulted offer.

     

  4. Although no provisions are provided for any formal appeal of a decision to return an offer submitted "solely to delay collection" , all employees must honor any taxpayers request to review this decision with their immediate manager.

  5. In some situations it may be determined that an offer is submitted as "solely to delay collection" when no prior offer has been submitted. When a collection employee has determined that the next action necessary is to enforce collection through levy or seizure, but the taxpayer files an offer to delay this enforcement action the offer may be returned as " solely to delay collection" .

5.8.3.19.2  (09-01-2005)
Examples and Discussion

  1. The following are examples of offers considered submitted " solely to delay collection" based on re-submission after a prior rejection or return:

    Example:

    During initial processing of an offer, it is discovered on AOIC that the taxpayer had a previous offer returned. This offer was closed six months ago as part of the "No Reply " process. The AOIC case history indicated that the taxpayer did not provide any bank statements with the first offer and did not respond to the combo letter sent. No bank statements were provided with the new offer submission. No special circumstances were indicated.

     

    Example:

    A taxpayer resubmits an offer that was rejected because the amount offered was $10,000 below the reasonable collection potential (RCP). The original amount offered was $10,000. The current amount offered is $10,100. There is no change in financial condition and no special circumstances were indicated.

     

    Example:

    A taxpayer submits an offer for $3,000 to be paid within 90 days of acceptance. A prior offer was submitted for $10,000 to be paid within 90 days. The investigation of the initial offer submission resulted in the offer being rejected with appeal rights. During that offer investigation it was determined that a piece of property was transferred to a non-liable spouse for no consideration and that a clear transferee issue exists. The value placed on the transferred property was $30,000, and was included in the reasonable collection potential (RCP). The taxpayer failed to request a timely appeal on the rejected offer. There were no special circumstances indicated.

     

    Example:

    During initial processing of an offer in compromise, AOIC indicates there have been three offers submitted by the taxpayer over the past 18 months. All three were returned for failure to provide requested CIS information. The closed return file indicates the taxpayer was asked to provide a financial statement for a closely held corporation, which the taxpayer holds 75% interest in and is the corporate president. A Form 433-B for this corporation was requested during the offer investigation. The offer specialist clearly documented in the file the taxpayers interest and position in this corporation. The request was clear and specific and the taxpayer refused to provide this information claiming the IRS has no right to place a value on the corporation when determining his ability to pay on personal tax liabilities. The newly submitted offer package does not include a Form 433-B for the corporation and the Form 433-A indicates the same corporation is the taxpayers current employer.

     

    Example:

    An offer is submitted for $30,000 payable within 90 days of acceptance. Research on AOIC indicates this the second offer submitted by the taxpayer. A prior offer was submitted for $20,000 payable within 90 days of acceptance. The original offer was rejected with appeal rights, the taxpayer filed a timely appeal, and Appeals sustained the rejection. A review of the prior offer file indicates the taxpayer has the ability to full pay the outstanding liability through an installment agreement. The total liability is for $40,000. A review of the financial information indicates the taxpayer still has the ability to full pay the liability. The original offer was received 18 months ago and no payments have been made during this period. There is no change indicated on the financial statement, except the taxpayer has a new employer. The taxpayers income remained the same. There are no special circumstances indicated.

     

    Example:

    A taxpayer filed an offer in January 2005. The offer was returned after the Offer Examiner requested that the taxpayer make estimated tax payments for the tax year 2004. The taxpayer failed to comply and therefore the offer was returned for noncompliance. In June 2005 the taxpayer submitted a second offer, which included the 2004 liability. Because the taxpayer failed to make the required estimated payments for 2004 and did not correct the defect by paying the full liability with the filing of the return, the offer should be returned. No special circumstances were indicated.


  2. The following are examples of offers considered "solely to delay collection" based on re-submission after a prior default within the past year:

    Example:

    The taxpayer had an offer accepted 18 months ago for $20,000 to be paid within 90 days of acceptance. The taxpayer paid $5,000 within 120 days of acceptance and failed to pay the balance of offer funds. The offer was defaulted for failure to meet the terms of the offer. A new offer is now submitted for $10,000 to be paid within 90 days of acceptance. Financial statements submitted with the new offer show no decrease in ability to pay and special circumstances were not cited and/or evident.

     

    Example:

    The taxpayer had an offer accepted for $10,000 paid within 90 days of acceptance. Subsequent to the acceptance the taxpayer incurred 2 additional years of income tax liabilities. The offer was defaulted because the taxpayer did not resolve the two additional liabilities. A new offer has been submitted for $5,000, that includes the prior offer periods and the two new periods. There are no special circumstances.

     

  3. The following are examples of offers considered "solely to delay collection" based on a prior collection analysis and determination of ability to pay:

    Example:

    Taxpayer owes $500,000. An offer is submitted for $15,000. The Collection Information Statement (CIS), as submitted by the taxpayer, indicates the taxpayer has recently been fired from his job where he had been earning $200,000 a year. The CIS also reflects a personal residence with a Fair Market Value (FMV) of $1.5 million and outstanding mortgage of $750,000 leaving equity of $750,000; a piece of property owned free and clear valued at $60,000, a large boat with a value of $140,000 which is unencumbered. Final demand has been made and a collection employee has indicated to the taxpayer that a Notice of Federal Tax Lien (NFTL) will be filed and possible enforcement action if the taxpayer does not full pay the liability. The investigation has shown that there are no special circumstances to be considered.

     

    Example:

    Taxpayers owe a joint 1040 liability for 1997 of $139,854 and submitted an offer for $250. Both taxpayers are self-employed: The husband is a painter and the wife is a real estate sales person. They have no future income potential. They own an unimproved lot valued at $14,700, a personal residence valued at $177,500, six automobiles and two horse trailers valued at $20,775. Their total reasonable collection potential (RCP) is $127,191 based on the equity in the assets. The balance due period was in active collection inventory prior to the offer submission. The collection employee advised the taxpayer to secure a loan on their equity or levy action would be initiated. The taxpayer refused to pay more than the proposed $250 and submitted the offer instead of making any payment to their tax liability. The investigation has shown that there are no special circumstances to be considered.

     

    Example:

    Taxpayer owes $32,000 and submits an offer for $100. The reasonable collection potential (RCP) is based on an ability to pay $400 per month. The earliest CSED's will expire within 5 months of the receipt of the offer , which is where the majority of the liability is assessed. The taxpayer has been advised of the CIS analysis and monthly ability to pay, but submitted an offer for $100. The reason given was that he wanted the tax liability "forgiven" and all he wants to pay is the $100 offer amount. No special circumstances were indicated.

     

5.8.3.19.3  (09-01-2005)
Procedures for Return of Offers Submitted Solely to Delay Collection

  1. The determination that an offer was submitted "solely to delay collection" may be made immediately after the offer is deemed processable or at any time during the offer investigation when the facts support the decision.

  2. The determination that an offer was submitted after a prior reject or default can be supported by reviewing records on AOIC and IDRS transactions:

    If… Then…
    AOIC indicates that prior offer records exist Determine the type of disposition used to close the prior offer submissions.
    AOIC indicates the prior offer submission was rejected with appeal rights The re-submission requires review to determine if it was submitted "solely to delay collection" .
    AOIC indicates the prior offer record was accepted Review the AOIC history screen and IDRS transactions to determine if the prior offer was defaulted within the past year.
    The prior offer was defaulted within the past year The re-submission requires review to determine if it was submitted "solely to delay collection" .

     

  3. To determine if the re-submission is materially different from the prior rejected or defaulted offer:

    1. Request the prior closed offer file, if available, from the appropriate office. Previously rejected closed offer files are located in the office that concluded the offer. Previously defaulted offer files are maintained in the Campus OIC Unit servicing the office that closed the offer.

      Note:

      The Centralized Offer in Compromise (COIC) Examiners will not be required to secure and review closed files as long as there is sufficient information in the AOIC/ICS history to establish that an offer is a re-submission "solely to delay collection" .

       

    2. Compare the information contained in the original offer file with the resubmitted offer package to determine if the offer was submitted " solely to delay collection" .

     

  4. When an Offer Specialist (OS) identifies that an offer was submitted "solely to delay collection" , Form 657, Revenue Officer Report, must be completed and submitted to the group manager for approval. If the group manager concurs, the case will be closed immediately as a return. A copy of the Form 657 should be forwarded to the appropriate revenue officer group manager to explain why the offer was not investigated and to refer the balance due accounts for appropriate collection activity.

    Note:

    Coordination should occur to ensure no levy is issued until after the return letter is sent.

     

  5. Centralized Offers in Compromise (COIC) Examiners will not be required to complete a Form 657, but will be required to document the AOIC history that the offer was determined to be a re-submission solely to delay collection. If the COIC Unit manager concurs, the offer will be closed immediately as a return.

  6. When revenue officers (RO) determine an offer is submitted " solely to delay collection" , they will complete a Form 657, Revenue Officer Report, and submit it to their group manager for approval. If the revenue officer group manager concurs, the Form 657 will be forwarded to the offer group manager or the COIC manager. If the offer group or COIC manager concurs, the offer will be closed as a return.

    Note:

    Coordination should occur to ensure no levy is issued until after the return letter is sent.

     

  7. If an offer was forwarded by a Revenue Officer (RO) and the Centralized Offers in Compromise (COIC) unit deems it to be processable, but the RO has determined that the offer was submitted to "solely delay collection " , the case must include the Form 657, Revenue Officer Report, detailing the reason(s) supporting the decision and approved by the field manager.

    • If the COIC unit manager agrees with the determination, the COIC employee will contact the originating RO to advise that the return letter has been issued.

     

    • If the COIC manager disagrees with the determination, discussions should be initiated with the field manager to reach an agreeable solution.

     

  8. When the investigating employee determines an offer was submitted "solely to delay collection" , regardless of the status of the balance due periods prior to the offer submission, the periods should be placed into the appropriate collection status to ensure that necessary collection actions are initiated. If the accounts were in Status 26 prior to the offer submission, the case should be reassigned to the field. If the balance due periods were not in Status 26 prior to the offer submission, discuss the case with the field group manager to determine if assignment to the field is appropriate. If the field group manager does not assign the case into inventory, the periods should be placed into ACS status.

    Note:

    These accounts should not be allowed to systemically proceed to notice status.

     

  9. The Form 657, Revenue Officer Report, serves to establish coordination between the field group, the offer group, and the Centralized Offers in Compromise (COIC) site to provide case documentation regarding these determinations, and to ensure collection action is not pursued until the return is approved.

Exhibit 5.8.3-1  (09-01-2005)
COIC Application Fee Tracking Report

This image is too large to be displayed in the current screen. Please click the link to view the image.

 

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. 

If Adobe Acrobat is needed to view the above forms.  A free version of Acrobat Reader is available  by clicking here.

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 "bargain" fee, 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.

For assistance please contact A. Nathan Zeliff, Attorney at Law

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