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Part 8. Appeals

Chapter 23. Offers in Compromise

Section 4. Acceptance, Rejection Sustention, and Withdrawal Procedures (non-CDP)

8.23.4  Acceptance, Rejection Sustention, and Withdrawal Procedures (non-CDP)

8.23.4.1  (10-16-2007)
AO/SO Procedures for Closing Non-CDP Offers

  1. When Appeals makes a decision on an offer in compromise (OIC) case, the basis of that decision must be adequately documented. The Appeals Officer or Settlement Officer (AO/SO) must also prepare the appropriate closing documents in order to obtain the necessary approvals and meet statutory requirements. This section provides procedures for the AO/SO to close out an accepted, rejected, or withdrawn non-CDP Offer in Compromise (OIC). Back-end closing procedures for the Appeals Processing Section (APS) are found in IRM 8.23.6 , OIC Processing and Closing Procedures.

  2. The Appeals Case Memorandum (ACM) contains the detailed basis for the AO/SO's recommendation. The approving official relies significantly on the information detailed in the ACM. Also, just as Appeals owes a taxpayer an explanation as to why the offer was not acceptable, Appeals owes Collection an explanation as to why their decision to reject the offer was overturned. The ACM may include a brief or long narrative depending on the complexity of the case. The ACM:

    1. Should include all information having a bearing on the overall decision in the case.

    2. Should not include confidential comments. Relevant facts of a confidential nature are rare, but if they exist and are pertinent to the case, include them in a supplemental report.

  3. The customized Form 5402, Appeals Case Transmittal and Case Memorandum, contains essential taxpayer identification information, resolution reason codes, case closing codes and case routing information.

    Note:

    It's important to generate the Form 5402 directly from APGolf as opposed to using a templated version. The Appeals Centralized Database System (ACDS) captures the case's Resolution Reason and Closing Codes when the Form 5402 is generated on APGolf. Appeals provides this information back to Collection and works with them on efforts to improve the overall OIC process based upon the data collected.

  4. APGolf also has the appropriate letters that notify the taxpayer of Appeals' decision in the case.

8.23.4.2  (10-16-2007)
Accepted Offers

  1. An OIC accepted under doubt as to collectibility (DATC) or Effective Tax Administration (ETA) must include all unpaid tax liabilities for which the taxpayer is liable. Appeals may consider an offer that incudes an unassessed liability, but the liability must be assessed before the offer can be accepted.

  2. A compromise is effective for the entire assessed liability for tax, penalties, and interest for the years or periods covered by the offer. An accepted OIC conclusively settles all tax debts listed on the Form 656 . Neither the taxpayer nor the government can re-open a compromise tax year or period unless there was a:

    • Falsification of information or documents

    • Mutual mistake of a material fact that would be sufficient to set aside or reform a contract

    • Concealment of assets and/or ability to pay

    See IRM 5.8.9 , Offer in Compromise, Possible Actions on Accepted Offers, for more information.

  3. Before preparing the closing documents, check the Integrated Data Retrieval System (IDRS) to make sure there are no other pending liabilities that are not included on the Form 656. A subsequent liability could cause IRS to default the offer. Matters that will later require the time and attention of the AO/SO and other IRS personnel can be avoided by checking for and resolving possible pending liability issues before closing out the case. The following are some ways to look for possible pending liabilities:

    • Check IDRS Command Code (CC) AMDIS

    • Check IDRS CC UNLCER to see if there are any Trust Fund Recovery Penalties not listed on the Form 656

    • Look for Transaction Codes (TCs) 420, 922, 976 or 977 to see if there is an amended return or any examination or underreporter activity

    If an open audit is found, follow the instructions in IRM 5.8.8.3 and IRM 5.8.4.12.1 .

    Caution:

    Review ex parte procedures in Rev. Proc. 2000-43 before contacting a Compliance function.

  4. If the offer includes Trust Fund Recovery Penalties (TFRPs), make sure all TFRP assessments are listed on the Form 656 . Generally, TFRPs assessed before August 2000 combined all unpaid corporate tax periods and were assessed using the latest quarterly period. TFRP assessments after August 2000 are made for each quarterly period. The Form 7249 and Form 656 must match by reflecting each assessed TFRP period.

  5. Order a MFTRA-X transcript as close to the acceptance date as possible without delaying acceptance. Sanitize the transcript to redact the taxpayer's identification number (both the primary and secondary SSNs if it's a joint offer) and all other tax information that should not be disclosed to the public. IRM 5.8.8.3 contains a detailed listing of the information that must be redacted.

  6. An amended Form 656 secured by Appeals must be signed by the AO/SO as the "Authorized Internal Revenue Service Official" (Section VIII of Form 656).

8.23.4.2.1  (10-16-2007)
Accepted Offer Closing Documents and AO/SO Procedures

  1. The ACM for an accepted offer should contain the following:

    1. The amount of the original offer and a description of the payment terms

    2. The amended offer amount, if applicable, and a description of its payment terms

      Note:

      Provide a complete explanation if the amount of the amended offer that's being recommended for acceptance is less than the amount of the original offer.

    3. The type of tax and periods (if the report covers individual and joint liabilities, clearly describe them in separate paragraphs)

      Note:

      If a tax period that was part of the original offer is subsequently paid in full via TIPRA payments, the period must still be listed on any amended offer. Even though the tax period is fully paid, the funds used to satisfy it are part of the overall offer amount, so the tax period must remain on the Form 656 . If a tax period is paid in full via a non-TIPRA payment, such as a refund offset, there is no need to list such period on the amended Form 656.

    4. The cause of the tax problem and status of current compliance, including estimated tax payments or federal tax deposits

    5. Collection's reason for rejecting the offer

    6. The issues raised by the taxpayer

    7. An analysis of the taxpayer's financial condition including any documentation upon which the AO/SO's position is based (e.g. type, location or condition of assets, or the taxpayer's age, health, education or future income prospects)

    8. A comparison of the financial figures claimed by the taxpayer, the amounts allowed by Collection, and the amounts allowed by Appeals. Sample RCP Comparison Tables are available at the Appeals web site.. If the taxpayer simply amends the offer to the RCP amount determined by Collection and the AO/SO agrees that this is the proper amount, there is no need for the financial figure comparison. Simply attach a copy of Collection's financial analysis tables to the ACM.

      Reminder:

      It's important for Appeals to document a clear and concise explanation of the factors considered in accepting the offer. This may include information that was not previously provided to Collection, or a different interpretation of the facts of the case or the policies procedures outlined in the IRM.

    9. The source of the offer funds

    10. The total amount of TIPRA payments already applied to the offer

    11. An affirmative statement that the offer being recommended for acceptance reasonably reflects collection potential or that special circumstances exist that otherwise justify compromise.

    12. An explanation of the special circumstances justifying acceptance under Doubt as to Collectibility with special circumstances (DATC-SC) or Effective Tax Administration (ETA) and why payment of more than the offered amount would either cause the taxpayer to be unable to meet necessary living expenses or would undermine public confidence that the tax laws are being administered in a fair and equitable manner

      Reminder:

      DATC-SC and ETA acceptance recommendations also require an affirmative statement indicating acceptance of the offer would not undermine other taxpayers' compliance with the tax laws.

    13. If the offer being accepted involves a federal employee, document whether public policy implications exist based on the sensitivity of the employee's position or area of responsibility

      Note:

      An offer involving an IRS employee requires Area Director approval.

  2. When recommending acceptance of two or more related offers based upon a single financial analysis, only one ACM is necessary. To ensure proper processing of the related offers, create separate files/folders marked "1 of 2," and "2 of 2." It's not necessary to duplicate information pertaining to both taxpayers, but the separate files/folders should contain the documents listed below in paragraph (3), except for only one consolidated ACM.

  3. Review Delegation Order 5-1, which is available at the Appeals OIC Home Page to determine the appropriate approving official.

    1. If the offer is being accepted based upon public policy or equity considerations (ETA or DATC-SC), approval from the Director of Field Operations is required and copies of the ACM and Form 5402 must be e-mailed to the OIC program analyst for Appeals Tax Policy and Procedure.

    2. It is not necessary to e-mail copies of the ACM or Form 5402 to Appeals Tax Policy and Procedure if the ETA or DATC-SC offer is based upon economic hardship.

  4. When accepting a non-CDP offer, prepare and assemble the following:

    1. Form 7249 , Offer Acceptance Report,

    2. Sanitized MFTRA-X transcripts for each tax debt listed on the Form 656

    3. Customized Form 5402 generated from APGolf

    4. ACM

    5. Letter 673 to notify the taxpayer of the accepted offer

    6. Form 656 or amended Form 656

    7. Collateral agreement, if applicable

    Note:

    Enclose a copy of the Form 656 and any collateral agreements with the taxpayer's (and POA's) copy of the Letter 673

  5. See IRM 8.23.6, OIC Processing and Closing Procedures, for APS OIC case closing procedures.

8.23.4.2.2  (10-16-2007)
Counsel Review of Acceptance Recommendations

  1. IRC 7122(b) requires an opinion from Counsel if the liability, including tax, penalties and interest, is $50,000 or more. Counsel's review of a proposed acceptance has two separate and distinct components:

    1. Certification that the legal requirements for compromise were met.

    2. If the legal requirements for compromise were met, then Counsel reviews the proposed acceptance for consistent application of the Service’s policies regarding whether the proposed compromise amount is acceptable. Review of the proposed compromise for consistent application of the Service's acceptance policies.

  2. Counsel's signature on the Form 7249 indicates that the legal requirements for compromise were met. If Counsel does not sign the Form 7249, the legal issues must be resolved before the case can be closed as an accepted offer.

  3. Per CCDM 33.3.2, Chief Counsel Directives Manual - Legal Advice, Other Legal Advice, Offers in Compromise, a finding by Counsel that a proposed acceptance is not in keeping with Service policy is not a justification for withholding an opinion if all of the legal requirements for compromise have been met. If Counsel signs the Form 7249 but disagrees with the amount of the offer, they will communicate their disagreement in a separate memorandum.

  4. Counsel's signature on Form 7249 is required for compromise, but their concurrence with the decision to accept the offer is not. However, the approving official for Appeals must review and carefully consider any opinion from Counsel prior to accepting the offer. If Counsel raised substantive policy concerns, it's appropriate to document the case activity record indicating the approving official carefully considered the issues before accepting the offer. See IRM 5.8.8.5.

8.23.4.3  (10-16-2007)
Sustaining Offer Rejection

  1. When the facts of the case do not support acceptance, the taxpayer should be informed that Appeals must sustain rejection of the offer. See IRM 8.23.3.3.2 for additional information.

  2. Appeals will sustain Collection's rejection of a Doubt as to Collectibility offer when Appeals determines that the taxpayer can pay more than the offered amount.

  3. Appeals will sustain Examination's rejection of a Doubt as to Liability offer when Appeals determines that the tax is correct as assessed.

  4. Since Appeals already has detailed financial information and familiarity with the taxpayer's current circumstances, there may be instances when an offer cannot be accepted but both the taxpayer and Appeals believe that an alternative resolution such as an installment payment agreement (IA) or having the account placed in currently non-collectible (CNC) status is appropriate. Document any discussions of alternative resolutions in the case activity record.

  5. See IRM 8.23.3.12 for details concerning alternative resolutions in a non-CDP offer case.

    Reminder:

    Appeals is responsible to input Transaction Code (TC) 971 with Action Code (AC) 043 upon receipt of an installment payment proposal. Use a Form 4844 , Request for Terminal Action, to request input of the TC 971 AC 043 to all tax periods. Appeals does not input the TC 971 AC 063.

  6. APS can process alternative resolutions as part of closing out the OIC case. Remember, APS isn't necessarily looking for IA or CNC information when closing out an OIC case, so be sure to prominently indicate the alternative resolution on the Form 5402 so it is noticeable. A Form 53 is not needed to have the account placed in CNC status. Simply request input of the proper TC 530 CC 24-32 in the "Remarks" section of the Form 5402.

  7. Appeals is responsible to make a lien filing determination as part of the alternative resolution. If a Notice of Federal Tax Lien (NFTL) will be filed per standard administrative procedures, advise the taxpayer accordingly. Explain CDP rights under IRC 6320 and document the case activity record. Indicate in the "Brief Remarks" section of the Form 5402 that the IRM calls for a lien to be filed and indicate the tax periods to be listed on the NFTL. The circumstances and reasons for not filing a NFTL must be clearly documented in the case activity record if such filing is generally required.

  8. If a deposit was received with the offer, the deposit will be returned unless the taxpayer provides written authorization to apply it to the tax debt. Use a Form 3040 , Authorization to Apply Offer in Compromise Deposit to Liability, for this purpose. The deposit is credited as of the date it was received by the Service.

    Note:

    If the offer at issue is a TIPRA offer, the 20% initial payment for a Lump Sum Cash offer and the proposed periodic installment payments for either a Short-term Periodic Payment offer or a Deferred Periodic Payment offer are not deposits and will not be refunded. Also, if the taxpayer pays more than 20% with the submission of a Lump Sum Cash offer, the excess amount is considered a payment of tax and will be applied in the government's best interest, unless otherwise designated. The same applies to periodic installments in excess of the proposed amounts.

8.23.4.3.1  (10-16-2007)
Closing Documents and AO/SO Procedures for Sustaining Offer Rejection

  1. The ACM for a case in which Appeals is sustaining the rejection of the offer should contain the following:

    1. Sufficient information to support the decision, including a complete financial analysis.

      Note:

      If the decision is simply to sustain Collection's RCP determination, the Offer Examiner's financial analysis tables (Income/Expense Table (IET), Asset/Equity Table (AET) or Full Pay Worksheet) are sufficient.

    2. Any counter proposals either offered to or received from the taxpayer.

    3. Information as to the disposition of any offer deposits.

      Note:

      The Customized Form 5402 may be used in place of an ACM if there is sufficient room to reflect the above.

    4. Information as to alternative resolution proposals considered by Appeals and/or recommended for approval.

  2. Review Delegation Order 5-1, which is available at the Appeals OIC Home Page to determine the appropriate approving official.

    1. If rejection of the offer is being sustained based upon public policy or equity considerations, approval from the Director of Field Operations is required and copies of the ACM and Form 5402 must be e-mailed to the OIC program analyst for Appeals Tax Policy and Procedure.

    2. It is not necessary to e-mail copies of the ACM or Form 5402 to Appeals Tax Policy and Procedure if rejection is being sustained on an ETA or DATC-SC offer based upon economic hardship.

  3. When recommending Appeals sustain rejection of the non-CDP offer, prepare and assemble the following:

    1. Customized Form 5402 generated from APGolf

    2. ACM

    3. An undated Letter 238 to notify the taxpayer that Appeals sustained rejection of the offer

    4. Form 3040 or other written authorization, as applicable

    5. Form 433-D , Installment Agreement, and a Form 13844 , Application for Reduced User Fee for Installment Agreement, if applicable

    6. Form 1271 , Rejection and Withdrawal Memorandum, unless the Form 1271 that was prepared by Collection is still in the file.

  4. Once all of the above documents are complete and assembled, update the ACDS case status to AC/FR and submit the case file to the ATM for approval.

8.23.4.4  (10-16-2007)
Withdrawn Offers

  1. IRM 5.8.7.4 contains details for withdrawn offers. There are now two kinds of withdrawals:

    1. Voluntary withdrawal, and

    2. Mandatory withdrawal

  2. A taxpayer may voluntarily withdraw an offer at any time after its submitted, including the time the case is in Appeals. A voluntary withdrawal may be made verbally, by fax, or in writing. Written withdrawals are encouraged. Letter 3504 (SC/SG), Offer in Compromise Withdrawal, and Letter 3504-A (SC/SG), Offer in Compromise Withdrawal - Joint, may be used for withdrawal purposes. The letters must be modified with respect to the taxpayer waiver appeal rights. However, if a taxpayer or authorized representative provides a clear oral statement requesting withdrawal of the offer, the offer may be closed as withdrawn. Be sure to adequately document the case activity record as to the taxpayer's or representative's withdrawal request.

  3. If the taxpayer mails a written withdrawal via certified mail or hand-delivers the withdrawal, the offer is considered withdrawn as of the date the withdrawal is received. Date stamp the withdrawal document with the received date, as that is the date the statutory period to collect the tax starts running.

  4. If the taxpayer verbally withdraws the offer or sends a written withdrawal via regular mail or fax, the offer will be considered withdrawn as of the date Appeals mails the Letter 241 (CG), Offer in Compromise Withdrawal Letter, to the taxpayer.

  5. Document the case activity record as to the manner in which the withdrawal was received.

  6. Since Appeals already has detailed financial information and familiarity with the taxpayer's current circumstances, there may be instances when an offer cannot be accepted but both the taxpayer and Appeals believe that an alternative resolution such as an installment payment agreement (IA) or having the account placed in currently non-collectible (CNC) status is appropriate. Document any discussions of alternative resolutions in the case activity record. See IRM 8.23.3.12 for details concerning alternative resolutions in a non-CDP offer case.

    Reminder:

    Appeals is responsible to input Transaction Code (TC) 971 with Action Code (AC) 043 upon receipt of an installment payment proposal. Use a Form 4844, Request for Terminal Action, to request input of the TC 971 AC 043 to all tax periods. Appeals does not input the TC 971 AC 063.

  7. Appeals is responsible to make a lien filing determination as part of the alternative resolution. If a NFTL will be filed per standard administrative procedures, advise the taxpayer accordingly. Explain CDP rights under IRC 6320 and document the case activity record. Indicate in the "Brief Remarks" section of the Form 5402 that the IRM calls for a lien to be filed and indicate the tax periods to be listed on the NFTL. The circumstances and reasons for not filing a NFTL must be clearly documented in the case activity record if such filing is generally required.

  8. The offer may also be considered withdrawn under IRC 7122(c)(1(B)(ii) if the taxpayer fails to make a proposed periodic installment payment. However, taxpayers are not required to continue making proposed periodic installment payments on either a Short-term Periodic Payment or Deferred Periodic Payment offer after such offer is rejected by Collection. For this reason, instances of mandatory withdrawal of a non-CDP offer should be uncommon.

    Note:

    Periodic installment payment requirements start again upon receipt of an amended Short-term Periodic Payment or Deferred Periodic Payment offer. The AO/SO is responsible to secure the TIPRA payment required with the amended offer and to monitor receipt of the proposed periodic installment payments until the case is closed by Appeals. If Appeals secures an amended offer well in advance of closing out the non-CDP offer and the taxpayer fails to make a proposed periodic installment payment, follow the procedures in IRM 8.23.5.3.1 regarding mandatory withdrawal.

8.23.4.4.1  (10-16-2007)
Withdrawn Offer Closing Documents and AO/SO Procedures

  1. The ACM for a withdrawn offer case should contain the following:

    1. Sufficient information indicating the type of withdrawal (voluntary or mandatory) and the manner in which the offer was withdrawn, e.g. verbal, written, certified mail, mandatory, etc.

    2. The taxpayer's reason for withdrawing the offer, if known.

    3. Information as to alternative resolution proposals considered by Appeals and/or recommended for approval.

    4. Information as to the disposition of any offer deposits.

      Note:

      The Form 5402 may be used in place of an ACM if there is sufficient room to reflect the above.

  2. Review Delegation Order 5-1, which is available at the Appeals OIC Home Page to determine the appropriate approving official.

  3. When closing out a non-CDP offer as withdrawn, prepare and assemble the following:

    1. Customized Form 5402 generated from APGolf

    2. ACM, if more details are needed than can fit in the Form 5402

    3. An undated Letter 241 (CG) to notify the taxpayer that the offer is withdrawn, the effective date of the withdrawal, and the disposition of any offer deposit

    4. Form 3040 or other written authorization, as applicable

    5. Form 433-D, Installment Agreement, and a Form 13844, Application for Reduced User Fee for Installment Agreement, as applicable

      Note:

      A Form 1271 is not needed for a withdrawn offer. See IRM 5.8.7.

  4. Once all of the above documents are complete and assembled, update the ACDS case status to AC/FR and submit the case file to the ATM for approval.

8.23.4.5  (10-16-2007)
Potential Default Offers

  1. A potential default offer is loaded onto ACDS as an OIC case.

  2. If the taxpayer was able to remedy the potential default issue and Appeals is not going to default or terminate the offer, document the case activity record and close the case using Closing Code 15. Close the Form 2209 back to MOIC advising that the offer should not be defaulted.

  3. If the taxpayer was not able to remedy the potential default issue, Appeals must issue the formal default or termination letter. See IRM Exhibit 5.8.9-4. The letter notifying the taxpayer of the termination of the offer must be signed by the Appeals official who accepted the offer or his or her successor. See Delegation Order 5-1, which is available on the Appeals web site at the Appeals OIC Home Page. Document the case activity record and close the case using Closing Code 14. Close the Form 2209 back to MOIC advising that the offer was defaulted. Attach a copy of the signed default letter and MOIC will then reinstate the compromise liability.

  4. When the Form 2209 advises Appeals of the death of a taxpayer, the AO/SO must determine whether there is an estate. An Appeals Referral Investigation (ARI) may be needed. See IRM 8.23.5.6 regarding ARI procedures. If there is an estate, the Service should file a proof of claim for the balance owed on the offer. If there is no estate, the offer should simply be closed out as satisfied. Use Closing Code 14 and send the Form 2209 back to MOIC advising that the offer should not be defaulted.

  5. Follow the same general procedures outlined above for a compromise of a compromise case.


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