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IRS and AICPA collaborate on OIC program.

Since implementation of 1992 IRS Policy Statement P-5-100, describing the Service's commitment to the Offer in Compromise (OIC) program, the AICPA has been a strong supporter. When the program was expanded by the Internal Revenue Service Restructuring and Reform Act of 1998, the AICPA again showed support. To obtain feedback on the program, it distributed a survey in June 2003 to state CPA societies, and received 80 responses. The results were summarized in a letter to Dale Hart, Commissioner, IRS Small Business/Self-Employed Division; see AICPA Letter to Commissioner Hart (10/14/03), available at www.cpa2biz.com/ResourceCenter s/Tax/Tax+Practice/AICPA+Urges +Changes+to+the+Offer+in+Com promise+Program.htm. The letter discussed several concerns, made suggestions and contained a plea for the IRS "to make the Offer program a legitimate opportunity to bring a segment of taxpayers back into compliance." It also noted, "a well functioning Offer in Compromise program has the potential of increasing the actual amount of tax collections while at the same time reinforcing taxpayers' obligations to maintain future compliance."

This item discusses some of the IRS's OIC reforms.

Form 656

November 2003 saw the beginning of the $150 user fee for filing Form 656, Offer in Compromise. However, at the same time, the IRS reached out to stakeholders, by requesting suggestions for its revision of Form 656. The AICPA Tax Division's IRS Practice and Procedures Committee submitted ideas, responded to a draft of Form 656 in January 2004 and conducted a telephone conference with IRS Director of OIC, Michael McDermitt, in February 2004. In July 2004, it revised Form 656 in a number of ways; some of the changes are as follows (items 12, 13 and 14 below are new):

* Item 8: By submitting this offer, I/we have read, understand and agree to the following conditions:

1. If the IRS rejects or returns the offer, the application fee will be kept by the IRS (8(c));

2. The statute of limitations for collection will be suspended during the period an offer is considered pending by the IRS ("pending" is defined in 8(m));

3. The IRS may file a Notice of Federal Tax Lien during the offer investigation (8(0)); and

4. The IRS is authorized to amend Item 5, "tax type and periods," to include any assessed liabilities failed to be listed (8(q)).

* Item 11: Although a signature(s) is still required, Form 656 now reads "Mandatory Signature(s)," instead of the note at the bottom of each page of the form stating, "Signature(s) of taxpayer required on last page of Form 656."

* Item 12: If an OIC was prepared by someone other than the taxpayer, that person's name and address must be supplied.

* Item 13: The information requested includes the preparer's signature, date, centralized authorization file number or preparer tax identification number, firm name, address, employer identification number and phone number.

* Item 14: The taxpayer may list another person and a phone number that the IRS may call to discuss the offer.

Form 656-A (New)

The $150 user fee must be attached to Form 656; if no fee is required, Form 656-A, Income Certification of Offer in Compromise, must be attached. The application fee does not apply to individuals with limited income. The income exception levels are recapped on the application fee worksheet, which must also be submitted with Form 656 to verify limited income. They do not apply to other entities, such as corporations or partnerships.

Form 656 Instruction Packet

The Form 656 instruction booklet contains information needed to prepare a complete and accurate OIC. Its table of contents is set up as a series of eight steps, including an OIC summary checklist; see the exhibit above. The booklet has had several major changes. For example, to calculate an offer, the personal assets and business assets exemptions have increased by 7.3%. The packet also includes information on how an OIC affects (among other things):

* The taxpayer's refund;

* Installment agreements and levies;

* Public inspection files;

* Taxpayer Advocate Services; and

* Low income taxpayer clinics.

Exhibit: Eight steps to completing an OIC

* Step One: Is Your Offer in Compromise "Processable"?

* Step Two: What We Need to Fully Evaluate Your Offer

* Step Three: Determining the Amount of Your Offer

* Step Four: Completing Form 656

* Step five: Offer in Compromise Application Fee

* Step Six: Where You Need to Send Your Offer

* Step Seven: What to Expect After the IRS Receives Your Offer

* Step Eight: Offer in Compromise Summary Checklist

Source: From the table of contents to IRS Form 656, Offer in Compromise, information booklet.

IRM

The Internal Revenue Manual (IRM), Part 5, Collection Process, Chapter 8, Offer in Compromise, also addresses OIC issues. For example, the overview defines a protracted installment agreement (5.8.1.1.3). The timeliness of OIC investigations is to provide structure for the overall process; they are not guidelines for absolute measures of employee performance. Unwarranted inactivity gaps in an offer investigation should be avoided (5.8.1.1.6).Tax cases controlled by the Department of Justice will not be considered (5.8.1.2.1).The expedited services of the Taxpayer Advocate Service are defined. A five-step process is listed for collection managers to follow when they receive Form 12412, Operations Assistance Request, requesting expedited handling of an OIC (5.8.1.6).

Outlook

The IRS reached out to the AICPA for input on the new OIC information packet and forms. The IRM gives additional insight into the process. Tax practitioners and taxpayers should proceed through all the steps of the Form 656 instruction packet to complete an accurate and, hopefully, a successful offer. The program can bring taxpayers back into compliance and increase tax collections. Practitioners and taxpayers should continue to alert the AICPA's IRS Practice and Procedures Committee of concerns and successes. FROM RUTH ANN MICHNAY, CPA, MBT, EA, RUTH ANN MICHNAY, RA., ST. PAUL, MN
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Title Annotation:Offer in Compromise
Author:Michnay, Ruth Ann
Publication:The Tax Adviser
Date:Jan 1, 2005
Words:986
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