8.22.7. Alternatives to Collection Action

(1) The IRS Restructuring and Reform Act of 1998 (RRA 98) created Collection Due Process (CDP) appeal rights and with them, the ability for taxpayers to contest their liability under certain circumstances.

(1) Internal Revenue Code (IRC) sections 6320 and 6330 are the primary sources of authority, in addition to applicable Internal Revenue Manual (IRM) sections. Further, the Taxpayer Bill of Rights, IRC 7803(a)(3), applies to Appeals employees’ interactions with taxpayers.

(1) The Policy analyst shown as the originator on the Product Catalog page is the assigned author of this IRM.

(1) PPQ&A provides trend and data analyses and detailed summary reports for Appeals.

(1) See IRM Exhibit 8.22.4-3, Common Terms and Acronyms Used in Collection Due Process, for such common terms and their definitions.

(1) Form 12257 serves as a summary Notice of Determination that waives the taxpayer's right to go to court and the suspension of levy action.

(2) When you reach an agreed resolution in a timely CDP, ask the taxpayer to sign Form 12257, Summary Notice of Determination, after advising that:

1. The taxpayer is not obligated to sign and the agreed resolution will be input with or without the Form

2. The right to petition Tax Court is waived

3. The right to a 30 day suspension of levy action is waived

4. Without it, Appeals delays the input of the agreed resolution by 60 or more days to see if the taxpayer petitions Tax Court

(1) Resolve open Taxpayer Delinquent Investigation (TDI) filing requirements when resolving a case through:

• IA

• OIC acceptance

• CNC, except cases closed with a hardship closing code described in IRM 8.22.7.7, Currently Not Collectible.

(2) Policy Statement 5-133 (P-5-133) allows closing of a TDI because the non-filing is not willful and:

• There would be no tax due on the delinquent return

• There would be minimal tax due on the return

• The cost to the Service to secure a return would exceed anticipated revenue

  Note: Refer to IRM 5.1.11.7.1, Enforcement Determination,, for further discussion on P-5-133.

(3) Document 6209, Section 11 lists TDI closing codes. See IRM 5.1.11.8, Delinquent Return Investigation Closures, for more information on closing TDIs. Note how the TDI module was resolved in the "Remarks" section of Form 5402.

(1) When issuing an ARI to Field Collection, follow the step table below:

(2) In response to your ARI, you may receive:

• No response: At your discretion, follow up within 30 days of the deadline for completing the ARI via secure e-mail. To avoid prohibited ex parte communications, limit your inquiry to the status of the ARI and route it to the Group Manager of the assigned employee.. Include any response to your ARI in the case file, in digital or paper form.. If there is no response to your ARI follow-up, treat the CIS as verified and proceed with the information you have.

• An incomplete response: Treat the CIS as verified and proceed with the information you have. Include any response to your ARI in the case file, in digital or paper form

(3) See the table below for sharing the results of the ARI with the taxpayer:

(1) If Collection returns a CDP OIC to Appeals with a recommendation to reject and the taxpayer subsequently submits new information to Appeals, see IRM 8.23.3.3.1.2, Request and Review of Supplemental Information - Collection Issue Offers, , and IRM 8.23.3.3.1.3, Determining When to Send an Appeals Referral Investigation (ARI), to determine if an ARI is necessary.

(2) If an ARI is necessary, issue it to the Collection office that recommended rejection of the OIC. Instructions for preparing the ARI are found in IRM 8.23.3.3.1.3, Determining When to Sent an Appeals Referral Investigation (ARI), and IRM 8.23.3.3.1.4, Requesting an Appeals Referral Investigation (ARI).

(3) Prepare a letter to the taxpayer advising that a referral is being made to the OIC unit for verification. You may use Letter 5208, Notification of Appeals Referral Investigation, to notify the taxpayer that information they provided to Appeals is being referred to Collection for evaluation.

(1) If the table in the Balance Due IRM 5.19.1.2.6.4, Financial Analysis, Verification and Substantiation, shows ACSS would verify a CIS based on the taxpayer's balance due and type of case resolution, you may request an ACSS ARI. If the table indicates no verification is needed, Appeals will not request verification through an ACSS ARI.

(2) When issuing an ARI, follow the step table below:

(3) In response to your ARI, you may receive:

• No response: At your discretion, via secure e-mail, follow up within 30 days of the deadline for completing the ARI. To avoid prohibited ex parte communications, limit your inquiry to the status of the ARI and route it to the correct Campus EEfax number for Campus cases. Include any response to your ARI in the case file, in digital or paper form. If there is no response to your ARI follow up, treat the CIS as verified and proceed with the information you have.

• An incomplete response: Treat the CIS as verified and proceed with the information you have. Include any response to your ARI in the case file, in digital or paper form.

(4) See the table below for sharing the results of the ACSS ARI with the taxpayer:

(1) A DDIA automatically transfers funds from the taxpayer's bank account to the IRS. If the taxpayer has a bank account, encourage the use of the DDIA.

(2) The following is required to establish a DDIA:

1. Form 433-D

2. A CIS, unless the agreement meets streamlined or guaranteed IA criteria

3. a voided check or the taxpayer's legibly written routing and account number

4. The taxpayer's signature, which is a legal requirement

Note: To reinstate a previously defaulted DDIA, a new Form 433-Dis not required as long as the monthly payment amount does not increase and the taxpayer’s bank, routing and account information have not changed. Research IDRS command code EFTAD for the taxpayer’s banking information, and confirm with the taxpayer it is still accurate. If accurate, at closing, alert APS via Form 5402 to input the appropriate transactions to reinstate the agreement. If the taxpayer’s banking information is no longer on EFTAD or is no longer accurate, secure a new Form 433-D.

(3) A faxed signature on Form 433-D can be accepted after speaking with the taxpayer. The faxed copy must be documented with the date of the contact.

(4) Discuss payment with and give the taxpayer a start date that is not too soon. Be sure to allow a sufficient grace period prior to the date the initial payment is scheduled.

(5) Monthly reminder notices are not issued on DDIAs.

(6) The taxpayer may request a notice of federal tax lien withdrawal from Collection once certain conditions of the DDIA are met. See IRM 8.22.7.9.1, NFTL Withdrawals for additional information.

(7) For additional information on the DDIA, see IRM 5.14.10.4 Direct Debit Installment Agreements, and IRM 5.19.1.6.4.13, DDIA, and any related subsections.

(8) At closing, select "DDIA" from the Form 5402 Installment Agreement drop down box. This alerts APS to return the "DDIA" to the originator for processing.

(1) Some IAs are not compatible with IDRS monitoring. The following agreements must be manually monitored in Centralized Case Processing (CCP) to ensure compliance with the terms of agreements:

• NMF assessments

• Agreements with variable or percentage amounts

• Agreements with irregular payment intervals

• Agreements secured from two or more parties at different addresses on the same liability (e.g. divorced taxpayers, partnerships, etc.)

• L Freeze modules during pending Joint and Several Liability Relief Under IRC 6015 claims

• IBTF IAs (except Express Agreements)

• Restitution Based Assessments and related civil assessments

• Any other agreement not compatible with IDRS monitoring

(2) Prior to closing, be sure that the TC 971 AC 043 has been input as this will prevent any FPLP levies. See also IRM 8.22.7.5.

(3) At closing, select "MMIA" from the Form 5402 Installment Agreement drop down box. This alerts APS to return the "MMIA" to the originator for processing.

(1) The Bipartisan Budget Act of 2018 amended IRC 6159, limiting the installment agreement (IA) user fee by providing a waiver or reimbursement of user fees to low-income taxpayers under certain circumstances. The IRS has interpreted new section 6159(f) to require that taxpayers self-identify that they are unable to make electronic payments through a debit instrument to qualify for a reimbursement of the reduced user fee(s) upon completion of the IA. Newly revised IA forms, including Form 9465, Installment Agreement Request, and Form 433-D, Installment Agreement, include a taxpayer self-identifier check box. The taxpayer should be considered self-identified if they either use the self-identifier check box, or otherwise state that they are unable to make electronic payments through a debit instrument by entering into a direct debit installment agreement (DDIA).

(2) A DDIA is the only mechanism the Service has in place by which the taxpayer may agree to make electronic payments through a debit instrument.

(3) Refer to IRM 5.19.1.6.4.6.4, Reimbursement of User Fee for Qualifying Low-Income Taxpayers, for the criteria used to qualify for reimbursement of IA user fees and examples of how a taxpayer self-identifies as unable to make electronic payments through a debit instrument by entering into a DDIA.

(4) When granting a regular IA or PPIA to a low-income taxpayer:

(5) IA command codes in IDRS will record a taxpayer’s ability to make electronic payments and identify qualifying low-income taxpayers who may be reimbursed the user fee upon completion of their IA. See also IRM 8.20.7.41.1(7).

(6) When applicable, inform taxpayers that IRS is noting in its records the taxpayer’s ability to make electronic payments through a debit instrument by entering into a DDIA.

(7) Do not question or dispute a taxpayer’s response to their ability to make electronic payments through a debit instrument by entering into a DDIA, even if the account history shows a past DDIA.

(1) A tax adjustment may be required before a case can be closed. Adjustments requested prior to closing a case are called interim adjustments. Interim adjustment requests should be made judiciously.

(2) To request an interim adjustment:

(3) APS alerts the originator via mail when the interim adjustment is complete.

(1) IRC 6323(j) gives the Service the authority to withdraw an NFTL under certain circumstances. Taxpayers requesting NFTL withdrawal must meet one of the following conditions:

• IRC 6323(j)(1)(A): The filing was premature or not in accordance with the Service's administrative procedures

• IRC 6323(j)(1)(B): The taxpayer entered into an agreement under IRC 6159 to satisfy the tax liability for which the lien was imposed by means of installment payments unless such agreement provides otherwise

• IRC 6323(j)(1)(C): Withdrawal facilitates the collection of the tax liability

• IRC 6323(j)(1)(D): With the consent of the taxpayer or the National Taxpayer Advocate, withdrawal would be in the best interest of the taxpayer and the United States

(2) See IRM 5.12.9, Withdrawal of Notice of Federal Tax Lien, for examples of when a withdrawal is or is not appropriate.

(3) Form 12277, Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien, is used by a taxpayer to indicate the basis for a withdrawal request under IRC 6323(j). This form is not needed in a CDP hearing if the taxpayer's request for withdrawal falls under one of the IRC 6323(j) criteria.

(4) Use the table below after considering a taxpayer's request for an NFTL withdrawal:

(5) Specific NFTL issues such as the discharge, withdrawal, release, subordination or premature filing of a NFTL may be considered during a hearing under IRC 6330, provided the identical issue was not already considered in a prior hearing under IRC6320.

(1) Circumstances may dictate a partial release of an NFTL is necessary. A partial release is necessary when:

• An OIC is accepted from only one party on a joint liability

• Innocent spouse relief is granted

• The taxpayer requests a release for a specific tax period that has been satisfied on an NFTL with multiple tax periods

(2) Use the following procedures for requesting a partial release after receiving concurrence from your ATM:

1. Prepare Form 13794

2. Forward the request to Centralized Lien Processing Operation (See SERP)

3. Request acknowledgment of the request for a partial release

4. Once acknowledgment is received, you may close your CDP without waiting for the partial release to be recorded

(3) Use the procedures above for requesting a manual release for satisfied or unenforceable accounts as per IRM 5.12.3.3.2, Liability is Unenforceable - IRC 6325(a)(1).

(1) If a taxpayer requests a subordination or discharge of a tax lien, see the table below:

(2) If the taxpayer completes Form 14135, Application for Certificate of Discharge of Federal Tax Lien, or Form 14134, Application for Certificate of Subordination of Federal Tax Lien, submit the application on an ARI to the Advisory Unit for the state where the property is located. See Pub 4235 for Advisory Unit addresses. In your ARI, remind Advisory to share the results with the taxpayer and Appeals. You may use Letter 5208, Notification of Appeals Referral Investigation, to notify the taxpayer that information they provided to Appeals is being referred to Collection for evaluation.

(3) Input SU/RI to suspend the case. This automatically puts the case in E/ARI status showing the case is suspended. Add Feature Code (RI) Referral Investigation. The RI feature code remains on the case after it is taken out of suspense. Input SU/RT to take the case out of suspense once the ARI is returned.

(4) Advisory considers the request, processes any payments and issues the certificate. Advisory shares the results of the request with the taxpayer.

(5) If Advisory rejects the discharge/subordination request and the taxpayer disputes it, review the decision and make a final determination prior to closing the CDP.

(6) The results of the discharge/subordination request are communicated to the taxpayer in the determination/decision letter attachment or Form 12257 waiver.

(1) The subsections below discuss responsibilities in CDP OICs.

(1) Upon receipt of Form 656, request an OIC WUNO by providing APS with:

1. “ACDS Update Request Form” or “APS Request Form for Collection Cases” found on APGolf under ACDS Updates.

2. A copy of page one and/or page two of the Form 656 listing all periods on the OIC

3. Include the offer number in the “OfrNum” field. ask APS to add the number when it has been established.

4. Include the amount of the OIC. To do so, include a copy of page three of the Form 656 or clearly indicate the amount of the OIC on whichever form is used to transmit the request (see "a)" above.

5. The related CDP Case Summary Card (CSC) noted "Please create OIC WUNO." Include feature code DP.

   Note: Remember to ask APS to add the OIC WUNO in the NOTES field of the CSC once it has been created.

   .

6. TIPRA statute date = oldest date stamp on form 656 of OIC plus two years

(2) Feature Codes:

1. All CDP OICS: Input Feature Code “DP” to the OIC WUNO. Input a “DP” to the CDP WUNO

2. DATL-OICs: Input Feature Code “LI” to the OIC WUNO

(3) Entries in SOURCE, DO, and PBC for the OIC are the same as the entries in the related CDP.

(4) A CDP/EH case can result in more than one OIC. For example, related entities such as a joint return and a sole proprietorship are each carded in as a separate OIC work unit. Related case files are associated and worked together unless there is a DATL OIC where the liability is precluded from CDP.

(1) Upon receipt of a new OIC, date stamp the upper right corner of Form 656 with the date the offer was received.

(2) DO NOT SIGN FORM 656 as COIC is responsible for signing it as part of the processability determination. Forward the offer to COIC for processing, even if it was received without a user fee or TIPRA payment.

(3) If the address on Form 656 doesn't match IDRS, confirm the current address with the taxpayer. Update ACDS with the current address as well.

(4) Make an effort to address with the taxpayer obvious offer processability deficiencies. Where possible, correct the deficiency prior to forwarding the offer to COIC. However, if you are unable to correct the deficiency, the offer must still be forwarded to COIC for the formal processability decision. For possible deficiencies see IRM 5.8.2.4.1, Determining Processability.

(5) Appeals may take jurisdiction over non-CDP periods for the purpose of resolving a case through an OIC. Examples of tax periods included in a CDP OIC but not the subject of the CDP/EH may include:

• Tax debts owed by the CDP/EH taxpayer but not listed on the CDP notice

• Joint tax debts of a co-residing spouse who did not request a CDP/EH hearing, or

• sole proprietorship or an LLC where the single member owner is solely responsible

(1) COIC makes the initial processability determination for all OIC cases.

(2) When receiving an OIC in CDP, prepare Form 13933, Collection Due Process/Equivalent Hearing Offer in Compromise Cover Sheet, and Form 3210, Document Transmittal , in the OIC section of APGolf. Send them with the items below to the appropriate COIC site for a processability determination and Collection investigation:

• Form 656

• The OIC application fee and TIPRA payment, if applicable

• Any written designation of the TIPRA payment from the taxpayer

• Form 433-A/B

• A signed Letter 3820, Appeals Received Your Offer in Compromise and We Can Consider It

• A self-addressed return envelope

  Note: The requirement to sign Letter 3820 before sending it to COIC is a new requirement. COIC mails Letter 3820 for processable OICs notifying the taxpayer that their offer has been forwarded to Collection for investigation.

(3) COIC issues its own letter to the taxpayer if the offer is not processable.

(1) During Collection’s offer investigation, there are situations that may result in a processable offer being returned, terminated or withdrawn. Collection advises the taxpayer of issue(s) preventing the offer from proceeding and provides an opportunity for the problem to be cured. If the taxpayer fails to do so, the OIC is returned with a letter advising them to contact Collection if she or he disagrees with the decision to withdraw, return or terminate the OIC.

(2) When an OIC is returned, terminated or deemed a mandatory withdrawal, review the OIC file and confirm Collection followed their policy:

(3) The taxpayer may submit a new offer soon after a previous offer is returned by COIC, but prior to the issuance of a CDP or EH closing letter by Appeals. Unless precluded under IRC 6330(c)(2)(B), this new offer is under the jurisdiction of Appeals and CDP. If the offer appears to be another return for a similar reason as the prior offer, attempt to have the taxpayer perfect the offer prior to submitting it to COIC for processability. In any event, the offer must be sent to COIC for processability.

(4) To be certain the TIPRA statute under 7122(f) is closed prior to the end of the 24-month period that begins with the receipt of Form 656, be sure to communicate to the taxpayer the final disposition of the OIC in your Determination or Decision Letter. See also IRM 8.22.7.10.1.3, TIPRA Statute Responsibilities.

(1) The subsections below discuss withdrawals in combination CDP OIC cases.

(1) A DATL OIC submitted in a CDP hearing is a challenge to the underlying liability. Examine the liability at issue to determine if the taxpayer had a prior opportunity per IRM 8.22.8,Liability Issues and Relief from Liability.

(2) The taxpayer must offer at least $1.00 in a DATL OIC. The amount offered should be the amount of the expected liability, penalties and interest.

(3) The taxpayer is not required to pay an OIC application fee or make a TIPRA payment in a DATL OIC.

(4) In the case of trust fund recovery penalty (TFRP) or personal liability excise tax (PLET) liabilities, consider hazards of litigation when appropriate. See IRM 8.6.4.2.7, Case Evaluation for Settlement Purposes. The ACM should adequately explain the basis of the settlement. See IRM 8.6.2.6.4.2, Resolved Based on Hazards of Litigation.

(5) On receipt of a DATL OIC, examine the underlying liability issue and consult with the table below:

(6) If Appeals becomes aware of a precluded DATL offer via eCase, contact the DATL unit via secure e-mail to advise them the offer is precluded from CDP. Explain the precluded issue in the ACM.

(1) When the IRS determines an OIC is in default, it sends the taxpayer a default letter to cure the noncompliance items. If the taxpayer does not cure the default, the OIC is terminated. A taxpayer does not have a right to appeal the termination of an OIC.

(2) Appeals retains jurisdiction of the offers it accepts. When an offer Appeals accepted is in potential default, MOIC unit sends a Form 2209 to Appeals to consider issuing a default letter per IRM 8.23.3.12, Potential Default Offers.

(3) Review the OIC file and confirm all administrative policies and procedures were followed pertaining to notification to the taxpayer of both potential default and termination. Document your specific findings.

(4) The taxpayer may contend that the termination was improper because the default was insignificant or not a "material breach." The only relevant question is whether there was a default of an express condition. Whether the taxpayer “materially breached” the OIC or “substantially complied” with the OIC is irrelevant.

(5) If you determine the termination was improper because there was no default, the purported termination by the Service was improper. You may determine that the OIC is still in effect.

(6) In CDP, you may also consider a new OIC proposed by the taxpayer as a collection alternative.

(7) In rare situations, a defaulted OIC may be reopened based upon a taxpayer’s exceptional circumstance. See IRM 5.19.7.15.3., Reopening Defaulted Offers.

(1) In CDP, the issue of rescission of an OIC may arise in Appeals:

• When an OIC was accepted by Appeals in a prior CDP hearing, or

• When an OIC was previously accepted outside of the CDP process, but one or more of the years included in the OIC is now in Appeals under CDP jurisdiction

(2) In the highly unusual circumstance where the issue of the rescission of a previously accepted offer is raised by a taxpayer in CDP, prepare a summary of all pertinent case details along with the recommendation of the Director, Collection Appeals, and forward it to the lead CDP Policy Analyst in Appeals. The matter will be reviewed by Policy and discussed with Chief Counsel, Procedure & Administration, to determine if it can be considered in CDP.

(3) See IRM 5.8.9.2, Rescission of Accepted Offers, for rescission criteria.

(1) OICs with DOJ controlled tax periods require special handling. DOJ controlled tax periods are identified via the IDRS codes listed at IRM 8.22.6.9, Cases Controlled by the Department of Justice (DOJ)..

(2) When you receive an OIC with DOJ controlled periods, note that on Form 13933, Collection Due Process/Equivalent Hearing Offer in Compromise Cover Sheet, to alert COIC. COIC will make a processability determination based on IRM 5.8.2.4.1.

(3) If Collection notifies you that DOJ settled its case involving one or more tax years listed on the OIC, resolve the CDP by asking the taxpayer to sign Form 12257, Summary Notice of Determination, Waiver of Right to Judicial Review or a Collection Due Process Determination. If the taxpayer declines to sign the waiver, proceed with your decision and discuss it in your Notice of Determination or Decision letter.

(4) If Collection returns a recommendation to reject, consider the OIC in the CDP hearing. If your decision is to:

• Reject: Convey the rejection in your Notice of Determination or Decision Letter

• Recommend Acceptance: Advise the taxpayer that a DOJ settlement cannot be compromised by IRS but an offer may be accepted for the non-DOJ periods only. Acceptance of the offer may include a collateral agreement signed by the taxpayer acknowledging the offer will default due to failure of the taxpayer to comply with DOJ’s settlement terms for the periods not included in the offer. Contact Area Counsel for assistance in preparing such a collateral agreement.

Note: Inclusion of a collateral agreement is not required. However, if the taxpayer declines to agree to the collateral terms with the offer, then an offer including only the non-DOJ periods may still be accepted if Appeals determines rejection of the offer would not be in the government’s interest.