This section provides guidance for various processing issues and case controls.

If a payment is received with Form 656, or any payment is made on the offer before the taxpayer's offer is accepted by the Service, these payments are treated as deposits and not collections of tax. The Record of OIC, Form 2515, is used to process these payments. Once the offer is determined to be processable, the deposit is attached to Form 2515 and, forwarded via overnight delivery to the Service Center OIC Unit.

If the taxpayer's offer is rejected or withdrawn and the taxpayer paid an amount with Form 656, the Service is required to refund the deposit when the offer is processed by the Service Center. The taxpayer, however may authorize the application of the deposit amount to any outstanding liability. This is done using Form 3040, Authorization to Apply Offer in Compromise Deposit to Liability.

Form 3044 is executed by the taxpayer after the offer case is completed if the taxpayer wants the deposit amount applied to any outstanding liability. The completed Form 3040 is forwarded to the Service Center OIC Unit along with the OIC file upon closing/final processing of he case.

The normal statutory period for collection purposes is ten years from the assessment of the tax liability.

The Offer in Compromise, Form 656, provides that the taxpayer agrees to the waiver and suspension of the running of the statutory period of limitations on both assessment and collection of the liability sought to be compromised for the period the offer is pending, during the period any offered amount remains unpaid, during the time that any term or condition of the offer remains unsatisfied, and for one additional year thereafter.

Effective January 1, 2000, the waiver can no longer be used. The statute of limitations will be suspended (by statute) only during the period the offer in compromise is considered pending by the IRS.

Waivers secured before January 1, 2000 will have no effect after December 31, 2002.

The Offer in Compromise DOES NOT extend the statute for additional tax assessments or overpayments. Steps should be taken to protect the interest of the Government before the statutory period expires.

IRC Section 6511(a) prescribes the period of limitation for a refund of tax. Offer to compromise are not considered for tax amounts that have already been paid.

If the taxpayer submitted an offer to Appeals during a Due Process (CDP) proceeding, the statutory period of limitations is suspended by law until a final determination is reached. Final determination occurs after the Office of Appeals issues a determination, and an expiration of he taxpayer's right to judicial review, or after a final determination by the court. This suspension could exceed the pending period of the offer. Taxpayers who submit offers to Appeals during an Equivalent appeal proceeding are not entitled to a suspension of he statutory period, provided for in IRC Section 6320 or 6330 (CDP).

In processing an offer with an "innocent spouse" issue, once an innocent spouse determination is made, the Master File joint assessment is transferred to a Non-Master File assessment established on the liable spouse. This can be done on the bottom portion of Form 3870 - Request for Adjustment. The examiner must be specific on the exact amount of tax for each spouse. In such instances, all time is charged to indirect activity code 720.

Offer in Compromise cases are received in Technical Support for control (by the OIC Coordinator) and are then sent to the examination group.

Time applied to investigating an OIC is charged (below the line) to activity code 720. If it is determined that a tax adjustment should be made, time spent examining books/records and preparing the report is charged directly to the case (return). Time spent preparing the rejection/withdrawal memorandum and taxpayer letters is charged to activity code 720.

If all time was charged to indirect exam time activity code 720:

For AIMS purposes, the statute is controlled under Claim status AA alpha code if he normal statute has expired.

In some situations, the case file may not include the administrative file and tax return. A copy of the return should be secured from the taxpayer or internally.

If the return is still reflected on AIMS when the offer in compromise was received, command codes ESTAB and AMSTUR should be used to order and establish he return. The originating source code is retained. ERCS controls must be reopened manually.

If the return is not on AIMS when the offer in compromise is received, the return should be ordered using source code 45. The source code and status code are updated to 73 and 12, respectively, once it is determined that a tax adjustment should be made.

Tax abatements for accepted OICs are completed using Form 3870. All other tax abatements (in arriving at correct tax) are completed on report Form 4549, Income Tax Examination Changes.

Section 3201 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 offers in compromise filed on joint liabilities. See IRM Handbook 4.10, Text 1.6.8 for a description of applicable correspondence and notice procedures. In general, the dual notice requirement applies to letters issued as described within this handbook.