4.18.1. Offers in Compromise Received in Exam

(1) This section provides direction for examiners working OIC-DATL cases.

(2) All OIC cases are received and processed through the Centralized Offer in Compromise (COIC) group. OIC-DATL cases are routed to the Centralized DATL processing unit in the Brookhaven Campus. Per IRM 5.19.24.6.4.2, Routing Cases Based on Jurisdictional Responsibility, the DATL unit evaluates the offer for processability and sends the case to exam if exam has jurisdictional responsibility.

(1) In accordance with IRC 7122, Compromises, the IRS is authorized to compromise any civil or criminal case arising under the internal revenue laws prior to referral to the Department of Justice for prosecution or defense. IRM 1.2.2.6.1, Delegation Order 5-1 (Rev. 5), To Accept, Reject, Return, Terminate or Acknowledge Withdrawals of Offers in Compromise, contains delegations of authority related to the OIC Program.

(1) The Director, Headquarters Examination, is the executive responsible for providing policy and guidance for compliance activities in Field, Specialty and Campus Exam operations and ensuring consistent application of policy, procedures and tax law to effect tax administration while protecting taxpayer rights. See IRM 1.1.16.3.5, Headquarters Examination, for additional information.

(2) The Director, Examination Field and Campus Policy, reports to the Director, Headquarters Examination, and is responsible for the delivery of policy and guidance that impacts the SB/SE Campus and Field examination process. See IRM 1.1.16.3.5.1, Field and Campus Policy, for additional information.

(3) Field Examination Special Processes (FESP), which is under the Director, Examination Field and Campus Policy, is the group responsible for providing oversight and policy, and procedural guidance on specialized examination processes to SB/SE Field examiners and managers. See IRM 1.1.16.3.5.1.2, Field Exam Special Processes.

(1) Periodic program reviews are conducted by FESP to:

• Assess the effectiveness of specific programs within Examination or across the organization,

• Determine if procedures are followed,

• Validate policies and procedures, and

• Identify and share best/proven practices.

(1) Automated Offers in Compromise (AOIC) is a Collection owned application that tracks and controls offers filed with the IRS. AOIC is the official system of record for the OIC program. The Collection OIC analyst sends to the HQ Exam Field Case Selection OIC analyst a monthly report of all DATL cases open on the AOIC system with a TIPRA statute due to expire within 14 months. The report is sent to Technical Services (TS) OIC reviewers and Planning and Special Programs (PSP) OIC coordinators to provide a status update on all offers within 6 months of a TIPRA expiration and to close or update to Appeals on AOIC any case no longer in Exam’s possession.

(1) The following table lists acronyms used throughout this IRM and their definitions:

(1) The following additional resources are available to assist examiners working OIC-DATL cases:

• IRC 7122, Compromises

• Form 656-L, Offer in Compromise (Doubt as to Liability)

• IRM 1.2.1.5.34, Policy Statement 4-117, Examination authority to resolve issues

• IRM 1.2.2.6.1, Delegation Order 5-1 (Rev. 5), To Accept, Reject, Return, Terminate or Acknowledge Withdrawals of Offers in Compromise

• IRM 4.1.1.6.16, Offer In Compromise (OIC)

• IRM 4.8.8.8, Offer in Compromise Cases

• IRM 4.24.6.9, Procedural Guidance Relating to Offers in Compromise and Doubt as to Liability

• IRM 5.19.24, Doubt as to Liability Offer in Compromise

• IRM 25.6.23.5.7.2.1, Offer in Compromise - Doubt as to Liability (OIC-DATL) Exam Statute Controls

(1) Doubt as to liability exists when there is a genuine dispute as to the existence or amount of the correct tax liability under the law. Doubt as to liability does not exist where the liability has been established by a final court decision or judgment concerning the existence or amount of the tax liability.

(2) Grounds for an OIC-DATL may exist when there is legitimate doubt from both the viewpoint of the taxpayer and the IRS. Validity of the OIC-DATL is determined by evaluating the supporting evidence and circumstances. The taxpayer is required to submit documentation and/or other evidence to support the OIC-DATL. The evidence available for both parties must be weighed in order to determine the extent of any "doubt".

(3) An OIC-DATL may not be rejected solely because the IRS is unable to locate the taxpayer's return or return information. The taxpayer is not required to submit a financial statement for a DATL offer. Also, there is no application fee for a DATL offer.

(4) SB/SE Examination has jurisdiction over OIC-DATL cases, except as noted in the following paragraph. Examination employees are responsible for preparation of the necessary documents and letters to effect the disposition of the OIC-DATL filed by the taxpayer.

(5) Collection Division has jurisdiction over doubt as to liability offers involving the Trust Fund Recovery Penalty and Personal Liability for Excise Tax. Unless the prior assessment was made by Examination, liability offers concerning assessments made during bankruptcy proceedings may also fall under the jurisdiction of SB/SE Collection.

(1) The filing of an OIC-DATL request extends an open statute for additional tax assessments in accord with the terms of the waiver provisions of Form 656-L, Offer in Compromise (Doubt as to Liability), filed by the taxpayer. See IRM 25.6.23.5.7.2.1, Offer in Compromise - Doubt as to Liability (OIC-DATL) Exam Statute Controls, for more detailed statute information. When an additional assessment is considered, steps must be taken to protect the interest of the government before the recalculated statutory period for assessment expires. The recalculated period for assessment can be extended by consent before the recalculated period expires.

(2) In addition to the ASED statute, OIC-DATL cases have a Tax Increase Prevention and Reconciliation Act (TIPRA) statute. IRC 7122(f), Deemed Acceptance of Offer Not Rejected Within Certain Period, provides, "Any offer-in-compromise submitted under this section shall be deemed to be accepted by the Secretary if such offer is not rejected by the Secretary before the date which is 24 months after the date of the submission of such offer."

(3) OIC-DATL cases forwarded to Exam will carry the TIPRA statute date, that is two years from the IRS received date of the Form 656-L. The statute will also carry an "R" as part of the statute date, for example 04-04-2018R, to assist in identifying the TIPRA statute. The TIPRA statute is carried on AIMS/ERCS and the master file ASED will be blank while the offer is in process.

(4) When TS issues a rejection letter, the TIPRA statute is closed. As a result, even if the TIPRA statute date appears to be less than a year when sent to Appeals, once a final determination letter is issued, the TIPRA statute is no longer live.

(1) OIC-DATL offers are filed with the Brookhaven Centralized OIC Operation on Form 656-L, Offer in Compromise (Doubt as to Liability). The DATL unit is responsible for the initial screening for processability. See IRM 5.19.24.6, Processability. The Campus DATL unit loads the offer on the Automated Offer in Compromise (AOIC) system. AOIC is the case management system for Offers in Compromise. The AOIC system uploads a transaction code (TC) 480 to IDRS and generates a "Y" freeze.

(2) OIC-DATL cases may be forwarded from the DATL unit to the Area Planning and Special Program (PSP) or Workload Selection and Delivery (WSD) OIC coordinators for further review. The OIC coordinators determine whether further examination is warranted, prepare the cases to be sent to the field and update AOIC for assignment to the field. See Offer in Compromise in the SB/SE Field Exam Procedures book on Knowledge Management for a list of PSP OIC coordinators.

(3) Examination is responsible for the investigation of OIC-DATL cases.

(4) TS (WSD for excise cases) is responsible for case closing procedures, the administrative review and closure on AOIC. This occurs after the investigation and processing of OIC-DATL cases are completed in Examination.

(1) If there are no grounds for compromise under the doubt as to collectibility or doubt as to liability provisions, Treas. Reg. 301.7122-1(b)(3), Promote Effective Tax Administration, (see 26 CFR 301.7122-1(b)(3)) states a compromise may be entered into to promote effective tax administration when compromise of the liability will not undermine compliance with the tax laws, and:

1. Collection of the full liability will create economic hardship within the meaning of Treas. Reg. 301.6343-1, Requirement to Release Levy and Notice of Release, (see 26 CFR 301.6343-1); or,

2. Regardless of the taxpayer's financial circumstances, compelling public policy or equity considerations identified by the taxpayer provide a sufficient basis for compromising the liability. Compromise will be justified only where, due to exceptional circumstances, collection of the full liability would undermine public confidence that the tax laws are being administered in a fair and equitable manner. A taxpayer proposing compromise to promote effective tax administration with compelling public policy or equity considerations will be expected to demonstrate circumstances that justify compromise even though a similarly situation taxpayer may have paid his liability in full.

3. See IRM 5.8.11. Effective Tax Administration, for legal basis and evaluation of ETA offers.

(2) Collection has jurisdiction over offers based on effective tax administration for public policy reasons or equity considerations. Collection's Non-Economic Hardship - Effective Tax Administration (NEH-ETA) group reviews offers submitted under public policy or equity consideration.

(3) Occasionally, the NEH-ETA group may request review or input from Examination relative to a tax law issue or an issue that would undermine public confidence that the tax laws are being administered in a fair and equitable manner or would undermine compliance. See IRM 5.8.1.6.4, Examination Function.

(4) If Collection requests assistance, the request will be forwarded to the group from PSP. Collection will retain control of the case and any time spent by the examiner will be charged to Examination Technical Time Reporting System Activity Code 812, Details Out of Practice Area or Area to: Collection Division. See IRM 4.9.1.6.4, Details.

(1) Before expanding to additional periods, collectibility must be considered. See IRM 4.20.1.2.1, Collectibility Considerations.

(2) If a non-offer period was previously examined, then reopening procedures apply of an adjustment unfavorable to the taxpayer is being considered. See IRM 4.2.1.6, Reopening of Closed Cases.

(3) Pickups should carry the appropriate source code and project code 0264. Employment tax cases worked in Area 212 should include tracking code 6506.

(4) The offer period(s) must remain in a separate case file and MUST close to TS with at least 6 months remaining on the TIPRA statute. The TIPRA statute cannot be extended.

(5) If offer and non-offer periods have interdependent issues, then all periods must close together to TS with at least 6 months remaining on the TIPRA statute.

(6) If the taxpayer disagrees and wants offer and non-offer periods to stay together but additional time is needed to complete non-offer period issues then:

• Secure a signed withdrawal statement from the taxpayer on Form 15281, Request to Withdraw Offer in Compromise - Doubt as to Liability, or use the language found in IRM 4.18.1.4.3.1.

• Process the withdrawal through TS and ask that controls be returned once the withdrawal is processed. The withdrawal may be completed electronically without the physical case file. See IRM 4.18.1.3.1.1.

• TS will process the withdrawal, close the offer on AOIC, update the status on AIMS and return the controls and the electronic file to the field group. The AOIC closure will generate a TC 48X to reverse the TC 480 and the master file statute will be systemically recalculated.

(1) Offers are identified on IDRS using the following transaction codes (TC):

• TC 480 - Offer pending (Jurisdiction code 1=collection, 2=exam and 3=appeals)

• TC 481 - Offer rejected or returned

• TC 482 - Offer withdrawn

• TC 483 - Correction of TC 480

• TC 780 - Accepted Compromised

• TC 781 - Defaulted OIC

• TC 788 - All collateral conditions of the OIC completed

(2) The following CSED indicators are found with the TC 480:

• P - The primary taxpayer submitted the offer

• S - The secondary taxpayer submitted the offer

• B - Both taxpayers submitted the offer

(3) When an offer is received in an Area office and the taxpayer is not located within the receiving Area, the offer will generally be forwarded to the PSP Area office where the taxpayer resides using Form 3210, Document Transmittal, through their local PSP office. The PSP coordinator will update the Area assignment on AOIC to the correct Area and record where the offer was sent in the AOIC remarks.

(4) If the taxpayer files for bankruptcy, stop the OIC review and contact the PSP OIC coordinator or WSD OIC coordinator (excise cases). See IRM 5.19.24.14, Bankruptcy Filed During DATL Investigation.

(1) Time applied to investigating an OIC, including time spent examining books/records, preparing the report, and preparing the rejection/withdrawal memorandum and taxpayer letters, is charged directly to the case (return).

(2) For SB/SE Field Exam, if a prior examination occurred, the case must be set up in RGS similar to an audit reconsideration. See the RGS quick reference guide for Audit Reconsiderations.

(3) Taxpayer contact should generally be made within 30 days from receipt of the OIC-DATL. Offers in process over six months are considered overage. Letter 6233, Offer in Compromise (OIC) - Doubt as to Liability (DATL) Contact, will be used for the initial contact with the taxpayer regarding their OIC-DATL.

(4) Section 3201(d) of the IRS Restructuring and Reform Act of 1998 requires that, wherever practicable, any notice relating to a joint return be sent separately to each individual filing the joint return. This requirement also applies to an OIC filed on a joint liability. See IRM 4.10.1.2.2.1, Separate Notice Requirements for Joint Returns, for more information.

(5) Generally, the scope of the exam is limited to the issues raised in the offer. If other material issues are evident, see IRM 4.18.1.4.2.1.

(6) The OIC-DATL file is maintained separate from any previous examination file. Any previous file (paper and electronic) is used for reference only and must remain unchanged. The OIC-DATL issue workpapers should be in a separate folder in the electronic file.

(7) A brief summary of why the offer was filed must be included, and all conclusions must be documented and all arguments raised by the taxpayer addressed in the workpapers.

(1) If the taxpayer's liability changes as a result of the examination determination, a revised examination report must be prepared. The taxable income and or tax per return or previously adjusted/assessed must be the corrected taxable income and or tax from the previous report, verified from a transcript of the taxpayer’s account.

(2) The adjustment(s) should be discussed with the taxpayer(s). An examination report will be prepared to reflect the corrected tax liability. If the case is closing as a rejection, the report is not issued to the taxpayer. See IRM 4.18.1.4.3.3, Rejection.

(3) When considering an OIC-DATL where the assessment was based on substitute for return (SFR) assessments, any return filed with an open assessment statute must be reviewed to determine if all reportable income was included in the assessment. If the OIC-DATL investigation reveals additional income not included in the SFR assessment, or a subsequent return, and the statute is open, the taxpayer will be required to file an amended return to include the additional income.

(4) If a liability remains after consideration of the offer, payment should be solicited. See IRM 4.20.1.3.1, Request Full Payment.

(1) IRC 7122(e), Administrative Review, requires the IRS to provide for independent administrative review of all proposed rejections of offers in compromise prior to the rejection being communicated to the taxpayer.

(2) For Examination (except excise cases), this review occurs within the TS function where one reviewer shall be designated as the Independent Administrative Reviewer (IAR). See IRM 4.8.8.8.3, Independent Administrative Review Procedures for Rejected Offers. For excise cases this review occurs in WSD. See IRM 4.24.6.9.7, Doubt as to Liability Cases Subject to Independent Review Process.

(3) If the IAR determines that the rejection is not appropriate, the case file will be returned to the examiner, using Form 3990, Reviewers Report, with an explanation of why the rejection was inappropriate. If an agreement cannot be reached between the examiner and the IAR, the issue will be elevated to management (group managers or above) by either the field examiner or IAR, as appropriate.

(1) If Appeals receives a DATL case from Examination that is not fully developed, the case will not be returned. The hearing officer will make a decision based on available information. See IRM 8.23.3.9(8), Consideration of Doubt as to Liability (DATL) Offers.

(2) If the taxpayer provides additional information to the hearing officer, the hearing officer may send the new information to the originating function via Form 5402, Appeals Transmittal and Case Memo, Form 10467, Appeals Division Feedback Report and Transmittal Memorandum, or Form 2209, Courtesy Investigation. See IRM 8.23.3.9.3, Examination or Specialty DATL Offers - Liability Previously Determined by Form 870 or Defaulted Statutory Notice of Deficiency (SNOD).

• Appeals will retain jurisdiction over the case.

• The originating function has 45 days to take action on the new information and respond to the hearing officer. The time-frame may be extended.

• Time is charged to Activity Code 822, Details out of Practice Area or Area to: Appeals Division.

(1) No payment, or application fee, is required with the submission of Form 656-L, Offer in Compromise (Doubt as to Liability). On occasion, taxpayers submit payments when they submit OIC-DATL offers. If a payment is submitted with the offer, the Brookhaven DATL unit will apply the funds to the outstanding liability as discussed on Form 656-L.

(1) If the sole issue is relief from joint and several liability, ask the taxpayer to withdraw their OIC and file Form 8857, Request for Innocent Spouse Relief. In most instances, this will expedite the processing of their claim.

(1) IRC 7206(5), Compromises and Closing Agreements, provides for penalties (imprisonment and fines) for fraudulent and false statements applicable to compromises (and closing agreements). If an examiner believes fraudulent and false statements were made in submission of the offer, the Fraud Referral Specialist should be consulted.

(1) When the IRS is notified of the death of a taxpayer who submitted an OIC-DATL that is currently under consideration, the IRS can no longer consider the OIC-DATL. If the OIC-DATL under consideration was submitted jointly by a husband and wife, contact with the surviving spouse should be made to determine whether there is a probate proceeding pending. See IRM 5.19.24.15, Death of a Taxpayer.

(1) This section provides procedures for handling Offers In Compromise DATC, DATL, and ETA filed during an examination. While Collection has jurisdictional responsibility for DATC and ETA offers, examiners may play a role in the processing of offers.

(2) If a taxpayer submits an offer to the examiner during the course of an examination, the examiner must promptly forward the offer to Centralized Offer in Compromise (COIC) for processing. If a payment is submitted, the offer must be forwarded within 24 hours of receipt, otherwise within three calendar days of receipt. Upon receipt of the offer, the examiner will date stamp page 1 of Form 656, Offer in Compromise, or Form 656-L, Offer in Compromise (Doubt as to Liability), in the upper right-hand corner and will review the offer for completeness prior to forwarding to COIC.

(3) The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) requires mandatory acceptance if a determination is not made on a taxpayer’s offer within 24 months of the IRS received date. Based on this requirement, it is critical any OIC submitted to the IRS is promptly forwarded to COIC for a processability determination.

(4) The examiner must not sign the OIC.

(5) To provide better service to the taxpayer the examiner will perform a cursory review to expedite processing of the OIC. The examiner should ensure the offer package, at a minimum includes the following:

1. Full identification of taxpayer: name, address, social security number or employer identification number; both taxpayer names and signatures in instances of a joint liability offer.

2. Form 656 must include completed Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or Form 433-B, Collection Information Statement for Businesses.

3. Form 656 must also include the application fee and the initial offer payment, if applicable. Taxpayers who qualify as low income, based on current criteria, and check the Low-Income Certification Section on Form 656, are not required to submit the application fee or any offer payment(s) while the OIC is being investigated.

(6) If an offer is submitted, the examiner must consider collectibility and adjust scope as appropriate. See IRM 4.20.1.2.1, Collectibility Considerations.

(7) The examination and closure continues as normal. Prior to closure, if requested, the examiner will provide a copy of the audit report to the Collection employee handling the OIC case.

(8) Examiners must never solicit or obtain conditional agreements wherein the taxpayer only agrees to the proposed tax with the condition that an OIC simultaneously submitted (doubt as to collectibility) is accepted.

(9) If the taxpayer submits the OIC directly to Collection during the course of an audit, Collection will determine whether any periods are being examined and if so, contact the examiner for further coordination. See IRM 5.8.4.17, Pending Assessments.

(10) If an OIC is to be accepted by Collection, an acceptance letter cannot be mailed to the taxpayer until an assessment of the liability has been made. To obtain a quick assessment of the liability, Form 3198, Special Handling Notice for Examination Case Processing, the "Other" must be annotated, "Prompt Assessment Request—Offer Pending in Collection".

(11) The IRS will not consider an OIC under its administrative OIC procedures while a taxpayer is in bankruptcy. If an examiner receives an offer from a taxpayer that is in bankruptcy the offer must be forwarded to COIC. The Form 3210 must state that the taxpayer is currently in bankruptcy.

(1) When Campus Examination checks compliance with the terms of future income or other collateral agreements, the complete files with related returns may be referred to Area Examination. Cases may be referred for follow-up action to determine if the taxpayer has complied with the collateral agreement obtained as part of an OIC acceptance. A collateral agreement may involve a waiver of a future deduction arising from net operating losses or capital loss carryforward arising in prior periods. See IRM 5.8.6, Collateral Agreements.