IRS supplements OIC procedures.

A recent revenue procedure explais the procedures for submission and processing of offers-in-compromise (OIC) under Sec. 7122. It reflects changes to the law made by the Internal Revenue Service Restructing and Reform Act of 1998, and supplements and clarifies the procedures in Regs. Sec 301.7122-1.

The procedure applies to all offers to compromise a civil or criminal liability under Sec. 7122 submitted to the Service, except for those submitted (1) directly to the Office of Appeals and (2) after a case is referred to the Department of Justice. (For a discussion of the regulations, see Tax Practice & Procedures, "OIC Final Regs. Issued," TTA, Jan.2003, p.452.)

Offer Submission

An OIC must be submitted in writing on the Service's Form 656, Offer in Compromise. None of the standard terms may be stricken or altered and the form must be signed under penalty or perjury. The offer should includdde all liabilities to be covered by the compromise, the amount the taxpayer proposesto pay and the payment terms. Payment terms include the payment amounts and due dates.

The offer should also contain any other information required by Form 656. The Service occasionaly revises Form 656 and may require OICs to be submitted on the most recent version of the form, which is available on the Service's website at www.irs.gov. Although the offer should be mailed to the appropriate address listed on Form 656, the Service may, in its discretion, receive OICs in other ways.

The offer should set forth the legal grounds for compromise and provide sufficient information for the Service to determine whether it fits within its acceptance policies, including (1) doubt as to liability, (2) doubt as to collectibility or (3) promotion of effective tax administration, as set forth in the regulatins and the procedure. It should include all information needed to verify the grounds for compromise. Except for offers based solely on doubt as to liability, this includes financial information provided in a manner approved by the Service.

Individual or self-employed taxpayers must submit Form 433-A. Collection Information Statement for Wage Earners and Self-Employed Individuals, with any required attachments or other documentation. Corporate or other business taxpayers must submit Form 433-B, Collection Information Statement for Businesses, with any required attachments or other documentations. The Service may require corporate officers or individual partners of a business taxpayer to complete Form 433-A.

Accepted and Returned Offers

Sec. 6331(k)(1) generally prohibits the Service from levying on a taxpayer's property or rights to property while an OIC is pending, for 30 days after rejection of an OIC or while an appeal of a rejection is pending. The Statute of limitations on collection is suspended while a levy is prohibited.

An OIC is pending when it is accepted for processing. The Service accepts an OIC when it determines that (1) the offer is submitted on the proper version of the form 656 and Form 433-A or B-, as appropriate; (2) the taxpayer is not in bankruptcy; (3) the taxpayer has complied with all filing and payments requirements listed in the Form 656 instructions; (4) the taxpayer has enclosed the application fee, if required; and (5) the offer meets any other minimum requirements established by the Service. A determination that the offer meets these minimum requirements means that the offer is processable. An OIC is accepted for processing when an authorized Service official signs Form 656 (the date is recorded on the Service's computers). Levy is prohibited as of that date unless the Service determines that collection of the liability is in jeopardy.

If the Service determines that an OIC does not meet the minimum requirements for a processable offer, it may be returned to the taxpayer. Because the offer was never accepted for processing, it was never pending and levy was never prohibited.

If an OIC accepted for processing does not contain sufficient information to permit the Service to evaluate whether it should be accepted, the IRS will request that the taxpayer provide the needed additional information. If the taxpayer does not submit such information within a reasonable time, the Service may return the offer. The Service also may return the offer after it has been accepted for processing if:

1. It determines that the offer was submitted solely to delay collection.

2. The taxpayer falls to file a return or pay a liability.

3. The taxpayer files for bankruptcy.

4. The offer is no longer processable.

5. The offer was accepted for processing in error.

When the offer is returned on these grounds, the Service will not refund the application fee unless the offer was accepted for processing in error.Also, the return of the offer for any of the reasons does not constitute a rejection; thus, the taxpayer cannot appeal to the IRS Office of Appeals under Regs. Sec. 301.7122-1(f)(5). If the Service initiates collection action following a return of an OIC, the taxpayer may be able to appeal the collection action under Sec. 6320 or 6330 or under the Collection Appeals Program.

An offer returned following acceptance for processing is deemed pending only for the period between the date the offer is accepted for processing and the date it is returned. The Service may levy to collect the liability that was the subject of the offer after it returns the offer to the taxpayer. An OIC is deemed returned on the day the Service mails, or personally delivers, a written letter to the taxpayer informing him or her of the decision to return the offer.

Investigation and Evaluation

For all OICs (other than those based solely on doubt as to liability), the Service verifies the taxpayer's income and assets according to its policies and procedures. It uses a variety of sources to verify the taxpayer's valuation of its property. The Service relies on internal sources (such as its computer databases or other records), and public and electronic sources (such as state motor vehicle records and credit bureau reports and taxpayer-supplied documentation).

The Service maintains a schedule of national and local allowances to account for the basic living expenses of taxpayers seeking to compromise and to determine the monthly income available to pay the liability. These schedules are available in the Financial Analysis Handbook, IRM 5.15, and at www.irs.gov. The schedules are not applied when doing so would leave the taxpayer without adequate means to provide for such expenses.

The taxpayer may withdraw an OIC by delivery of written notification of the withdrawal in person, by mail or by fax. An offer assigned to Centralized Offer in Compromise Units, however, may not be withdrawn by personal delivery, because documents cannot be personally delivered to these units. A taxpayer may also request withdrawal of an offer telephonically. A notice of intent to withdraw an offer should be directed to the Service office assigned to the case.

Acceptance

An OIC is accepted when the Service issues written notification of acceptance to the taxpayer and it is effective as of the date on the acceptance letter. Acceptance will conclusively, settle the liability specified in the offer. Compromise with one taxpayer does not extinguish the liability of any person not named in the offer who is also liable for the tax to which the offer relates. The Service may take action to collect from any person not named in the offer.

Appeal

The taxpayer may appeal the rejection of an OIC to Appeals.The taxpayer must timely file the appeal with the Service office that rejected the offer; it must be delivered to the Service or postmarked within 30 days from the date of the rejection letter. Under Sec. 6331, the Service may not levy on the taxpayer's property or rights to property for 30 days following the rejection of an OIC or while an appeal is pending.

An OIC has not been rejected until the Service issues written notification of rejection to the taxpayer. Sec. 7122(d) requires the Service to conduct an independent administrative review before the rejection of an OIC is communicated to the taxpayer. Rejection is effective as of the date on the letter. The Service will not refund the application fee.

The procedure was effective Aug. 21, 2003; application fee provisions are not effective for offers submitted before Nov. 1, 2003. REV. PROC. 2003-71, IRB 2003-36

REFLECTIONS: In general, the procedure supplements Regs. Sec. 301. 7122-1 with more detailed procedural requirements for submitting and processing an offer. Compliance is important because, if the offer is accepted for processing, levy is prohibited and the statute of limitations on collection is suspended; also, the taxpayer retains a right to appeal, which also bars an IRS levy. If an offer is not acceptable for processing under IRS requirements, the IRS may proceed with collection and levy. At that point, the taxpayer's only alternative to stop the levy is to file a Sec. 6330 fair hearing request.