Purpose: During the investigation of an offer in compromise (OIC), certain situations may be encountered that require consideration before a final determination can be made. This section discusses how to treat these situations when evaluating a Doubt as to Liability (DATL) offer.

Audience: These procedures apply to IRS employees who are responsible for investigating and processing Doubt as to Liability offers.

Policy Owner: Director, SBSE Collection Policy.

Program Owner: SBSE Collection Policy, OIC.

Primary Stakeholders: The primary stakeholders are COIC offer employees.

Program Goals: The government, like other creditors, encounters situations where there is a legitimate dispute as to what is owed. It is an accepted business practice to resolve these issues through negotiation and compromise. This IRM discusses Doubt as to Liability (DATL) offers in compromise. By following the processes and procedures provided by this IRM, employees will process DATL offers in a manner that follows IRS policy and procedures while promoting the best interests of the Government.

Taxpayers who have a legitimate doubt that they owe part or all of a tax debt, may file an offer in compromise under the Doubt as to Liability basis. Doubt as to liability exists where there is a genuine dispute as to the existence or amount of the correct tax debt under the law.

Offers submitted based solely on doubt as to liability are received in COIC and Field Collection Area Offices and forwarded to the Centralized DATL processing unit located at the Brookhaven campus.

Offer in Compromise (Doubt as to Liability), DATL offers are submitted on Form 656-L.

The Centralized DATL processing unit located at the Brookhaven campus will receive from COIC and FOIC offices all Forms 656-L submitted on the basis of DATL, except those offers involving Trust Fund Recovery Penalty (TFRP) or Personal Liability for Excise Tax (PLET). COIC and FOIC offices will process TFRP and PLET offers.

If one Form 656-L is submitted with both TFRP and any other tax liability, the tax examiner should request separate offers. The tax examiner can make a pen and Ink change on the original offer and request an additional offer for the other tax liability and then transfer the TFRP to the field.

When DATL and DATC offers are received simultaneously, the DATL offer determination will take precedence. See IRM 5.8.10.14, Taxpayer files both Doubt as to Liability and Doubt as to Collectibility Offers.

The timeliness of case actions in an offer investigation is important not only to ensure the efficiency of the process but also is a key component of taxpayer satisfaction.

The guidelines for timely case actions defined in this IRM are intended to provide structure for the overall offer process and to ensure investigations are completed in a responsive and efficient manner.

Managers and employees must make sure communications from taxpayers are addressed in a timely manner. Timeliness of case actions ensures the length of the offer investigation process is appropriate given the taxpayer’s specific set of facts and circumstances.

On July 16, 2006, the Tax Increase Prevention Reconciliation Act of 2005 (TIPRA) was enacted. TIPRA mandates an acceptance of any offer where a decision is not made within 24 months of the offer receipt date. If a liability included in the offer is disputed in any court proceeding, that time period is not included when calculating the two-year time frame. The 24 months does not include the time that a protested, rejected offer is under consideration in Appeals.

If a mandatory acceptance is warranted, refer to IRM 5.8.8.12, 24-month Mandatory Acceptance, under IRC 7122 (f).

Upon receipt of the offer, the following actions will be performed:

Tax examiners will perform initial offer actions within 15 days calendar days of IRS received date. These actions include:

Tax examiners are solely responsible for determining processability on all DATL offers received and worked by the Service, with the exception of those offers listed in IRM 5.19.24.3, Centralized Doubt as to Liability (DATL) Processing.

Each new receipt will fall into one of the following categories:

Update Processability code to "Y" .

Complete the Terms Screen on AOIC.

Sign and date Form 656-L, in “IRS Use Only” box on page 8 on behalf of the IRS.

Update the AOIC MFT screen to include tax periods listed in the offer.

If manual TC 48x was input, write “TC” in red on the folder to identify when the offer needs to be closed with a manual TC 48x

Update status to ST 71, if applicable.

Document the AOIC history. Refer to IRM 5.19.24.26, Documentation.

For processable offers that do not require internal document requests or additional information from the taxpayer, send the AOIC Combo A letter indicating taxpayer contact in 45 days from the date of the letter and proceed with the offer evaluation.

On initial contact, the tax examiner should include Publication 1, Your Rights as a Taxpayer and, Publication 594, The IRS Collection Process, with correspondence addressed to the taxpayer and the taxpayer's representative. These publications should be sent through the ELITE system, when available.

For offers that are deemed processable and an internal document request is needed, send the AOIC Combo A letter indicating a tax examiner will contact the taxpayer 45 days from the date of the letter. The tax examiner's follow up date will be 30 days from the date of the internal document request. Document AOIC remarks of action taken.

If you have completed a request for internal documents and have not received a response within 14 days of the original request, initiate a Special Search. For additional information on a special search refer to IRM 3.5.61.16, Special Search Procedures.

For processable offers that do not require internal document requests but require additional information from the taxpayer, contact the taxpayer or the representative by telephone. Generally, two attempts to contact the taxpayer/representative via telephone must be made before correspondence is sent requesting a return phone call or additional information. The contacts or attempted contacts must be documented in the history. The attempts to contact the taxpayer should be made within three business days. If contact by telephone cannot be made after two attempts, send a quick note requesting a call back within 10 calendar days of the date of your letter. Document AOIC remarks summarizing the information requested.

A time frame of 30 days should be given to the taxpayer to send in all requested documentation. Document the AOIC history indicating the deadline for the response. The Combo B will be post-dated five calendar days from the date it was prepared. Allow an additional five days for mail time. Set the follow-up for 45 days from the date the letter was generated. If the taxpayer or their representative requests an extension of time to comply with the request for information, a reasonable amount of time should be granted.

If the request is made by telephone, give the taxpayer 14 calendar days to provide the documentation. The taxpayer must be advised that the failure to submit the requested documentation within this time frame may result in the offer being returned without further consideration. Document AOIC remarks.

TEs are required to initiate the next appropriate action within 10 calendar days on cases where the taxpayer has responded to the Combo letter or have received internal documents that were requested. All follow up actions must be taken within 10 calendar days of an established deadline.

The TE should also remember the initial contact time frames are the maximum time frames for contact. Wherever possible, the TE should strive to make initial contact as soon as possible after case receipt to avoid unwarranted delays.

If the taxpayer or the representative does not send all requested documentation by the follow up date, return the offer as a Processable return. See IRM 5.19.24.10, Processable Return Procedures.

If the examiner completely agrees with the taxpayer's position regarding the correct tax liability, take the action necessary to resolve the assessment(s), wait for the adjustment(s) to post to IDRS. Once all actions are taken to reconcile the taxpayer's account including the release of -K freeze, TC 820, etc., then send an AOIC combo letter with paragraph V and provide a copy of the account transcript(s) to the taxpayer and the POA, if applicable. Advise the taxpayer that the liability(ies) which were the subject of the offer are resolved and that a compromise is not necessary. If there is no balance due after adjustments are made, a return of the offer is recommended. If there is still a balance due after adjustments are made, a withdrawal of the offer is recommended.

If the examiner partially agrees with the taxpayer's position regarding the correct tax, take the appropriate action necessary to adjust the liability(ies). Wait for the adjustment(s) to post to IDRS. Once all actions are taken to reconcile the taxpayers account including the release of -K freeze, TC 820, etc. then send AOIC combo letter with paragraph V and provide a copy of the account transcript(s) to the taxpayer and the POA, if applicable. Advise the taxpayer that the assessment(s) which were the subject of the offer have been adjusted and a balance remains, for which the Service expects full payment. Include the amount due, projecting accrued penalty and interest for 30 days. Also, advise that, if the taxpayer agrees with the IRS determination, it is necessary to withdraw the offer.

If the examiner does not agree with the taxpayer's position regarding the correct tax liability and, therefore, no changes will be made to any of the periods that were the subject of the offer, advise the taxpayer that the balance is still due. Include the amount due, projecting accrued penalty and interest for 30 days. Also, advise that if the taxpayer agrees with the IRS determination, it is necessary for the taxpayer to withdraw the offer.

If the taxpayer still has a balance due after all account adjustments are made, follow IRM 5.8.7.10, Alternative Resolutions. If the taxpayer withdraws the offer, follow procedures in IRM 5.19.24.16, Withdrawn DATL Offers, to close the offer.

If the taxpayer does not withdraw the offer, follow procedures, in IRM 5.19.24.17, DATL Offer Rejections, to reject the offer.

When the President authorizes disaster assistance through the Robert T. Stafford Disaster Relief and Emergency Relief Act, and the Federal Emergency Management Agency identifies counties as qualifying for individual assistance, the Disaster program office will prepare an IRS Declaration Relief memo.

On -O freeze cases where contact is unsuccessful and the TIPRA date reaches 12 months, review and determine if the offer can be worked with the information in the file.

Establish a follow-up for the FEMA expiration date. Managers will monitor on a monthly basis.

The TIPRA statute is not suspended due to a disaster freeze code, you must continue to monitor for any imminent statute. Refer to IRM 5.8.1.17 Disaster Procedures (-O freeze and -S freeze) for additional guidance on Disaster procedures.

The FAST Act, signed into law December 4, 2015, created new code section IRC 7345. Under this code section, the IRS may certify that a taxpayer has a seriously delinquent tax debt, and if it does make that certification, it is then required to notify The Department of State (DOS) of that certification. The DOS generally will not issue or renew a passport to an individual after receiving the certification from the IRS. To identify and work these cases, refer to IRM 5.8.1.10, Passport Certification Under the Fixing America’s Surface Transportation (FAST) Act, and IRM 5.1.12.27.8, Reversal of Certification.

If the taxpayer is traveling and they need the reversal to be expedited, complete Form 14794. Form 14794 should be sent directly to the *SBSE Passport Group after all required signatures are secured.

Prepare an AOIC return letter citing all reasons for the return.

If relief from joint and several liability innocent spouse claim is the only issue present in the offer, and if:

If Form 8857, Request for Innocent Spouse Relief, or a signed statement is received:

These procedures apply when DATL receives a processable offer that meets the criteria for Employment Tax, Excise Tax, Estate and Gift Tax, International including Large Business and International (LB&I) cases, Tax Exempt Government Entities- Exempt Organization (TEGE-EO), Tax Exempt Government Entities – Indian Tribal Government (TEGE-ITG), TEGE State and Local Government, TEGE Employee Plans and TEGE Tax Exempt Bonds.

Identity theft occurs when someone uses an individual’s personal information, such as name, Social Security Number (SSN), or other identifying information without permission, to commit fraud or other crimes. Taxpayers should notify the IRS when they believe they have experienced an identity theft incident. tax examiners should become familiar with the IRM 25.23.1, Identity Protection and Victim Assistance - Policy Guidance, for additional information regarding identity theft procedures

Taxpayers who have experienced identity theft are already victims, either emotionally or financially. IRS employees need to be aware of that impact and handle the contact with an additional level of sensitivity and understanding.

Identity theft can affect tax administration in two primary ways:

The identity theft issue can be discovered during your offer investigation, or the taxpayer can self-identify by providing any of the following;

In these instances, taxpayers must provide documentation to establish their identity and documentation to support the claim of identity theft.

If a taxpayer files bankruptcy during investigation of a DATL offer, stop the investigation, and close the offer as a return.

Follow procedures provided above in IRM 5.19.24.10, Processable Return Procedures, but cite the bankruptcy filing as reason for return in the return letter.

When the Service is notified of the death of a taxpayer who submitted an offer (or either spouse on a joint offer) that is currently under consideration, the Service can no longer consider the offer. A termination letter will be generated and close the offer.

Offers closed as terminations do not require preparation of the Form 1271, Rejection Memorandum.

The following actions should be taken to close an offer as a termination;

Many times, the DATL OIC under consideration was submitted jointly by a husband and wife. In that situation, contact the surviving spouse to determine whether there is a probate proceeding pending and whether the surviving spouse will exercise the option to amend the offer to make it for only the survivor. See IRM 5.8.10.4(2), Death of a Taxpayer, and IRM 5.17.13.9, Decedents' Estates, for more information about decedent taxpayers and probate proceedings.

If the examiner can resolve the issue to the mutual satisfaction of the taxpayer and the Service, a compromise is not required. In such cases, the examiner should take the appropriate action as agreed and request that the taxpayer withdraw the offer. The TE must inform the taxpayer they are waiving their appeal rights when withdrawing the offer. See IRM 5.8.7.4.1 Voluntary Withdrawal, and IRM 5.8.7.4.1.1 Voluntary Withdrawal of a Joint Offer.

The taxpayer may also decide to withdraw the offer for other reasons unrelated to the examiner's determination.

A voluntary withdrawal request may be made orally, by fax, or in writing.

Receipt of a withdrawal request (either in writing or orally) must be clearly documented in the case file as well as how the request was received.

See IRM 4.18.2.7 (2), Doubt as to Liability Offer Withdrawn, for examples of written statements the taxpayer may submit to withdrawing the offer.

When an offer in compromise investigation is being closed as a voluntary withdrawal, the TE should discuss alternative resolutions with the taxpayer. Additionally, if an agreement is not reached with the taxpayer on an alternative resolution to the balance due accounts or no discussion was held with the taxpayer regarding an alternative resolution, the TE should take the appropriate actions to assign the balance due account to the appropriate function. See IRM 5.8.7.10 Alternative Resolutions.

If the taxpayer withdraws the offer:

When the offer is rejected, the taxpayer should be contacted by telephone to discuss alternative resolutions. See IRM 5.8.7.10 Alternative Resolutions.

The taxpayer will be notified in writing and the letter will explain how the taxpayer may exercise their appeal rights. Information received from the taxpayer in response to a conversation or letter must be considered before proceeding with the rejection.

Generally, rejections on offers based on DATL are because the tax is believed to be correct as assessed.

If the taxpayer does not agree with the examiner's conclusion and does not withdraw the offer take the following actions:

IRC § 7122(e) requires the Service to conduct an independent administrative review of a proposal to reject an OIC. The review must be conducted prior to the rejection being communicated to the taxpayer.

The Independent Administrative Reviewer (IAR) is responsible for conducting this review.

An offer to compromise a tax liability should set forth the legal grounds for compromise and should provide enough information for the Service to determine where the offer fits within its acceptance policies. Doubt as to liability exists where there is a genuine dispute as to the existence or amount of the correct tax liability under the law. Doubt as to liability does not exist where the liability has been established by a final court decision or judgement concerning the existence of the liability.

An offer to compromise based on doubt as to liability generally will be considered acceptable if it reasonably reflects the amount the Service would expect to collect through litigation.

An acceptable offer may be for an amount greater than the taxpayer offered on the original Form 656-L. If you have determined a new offer amount is acceptable, request an amended Form 656-L from the taxpayer. Mark the amended Form 656-L with amended on the top margin of page one of the Form 656-L. Update AOIC by inputting A (amended) on the summary screen of the AOIC record to reflect receipt of an amended offer. Do not change the offer pending date. Refer to IRM 5.8.8.2.1, Amending Form 656, regarding electronic signatures.

In certain situations, pen and ink changes are acceptable on Form 656-L. For additional information and requirements see IRM 5.8.8.3, Pen and Ink Changes to Form 656.

Counsel is required to review offers when the total unpaid amount of tax assessed (including any interest, additions to tax, and penalties) for all related offers from the same taxpayer is $50,000 or more at the time the offer was submitted. The purpose of Counsel's review is to determine whether the offer legally meets the standards of Doubt as to Liability (DATL). Counsel also reviews the offer to ensure it conforms to the Service's policies and procedures. The IRS has the legal right to accept the offer, regardless of Counsel’s opinion. However, rejecting Counsel advice is not a preferred course of action. See IRM 5.8.8.13.1, Counsel Review and Concurrence (Legal issue).

Refer to IRM 5.8.8, Acceptance Processing, and Del. Order No. 5-1 (Rev. 5) in IRM 1.2.2.6, Delegations of Authority for the Collecting Process, for procedures and levels of approval when recommending acceptance of a DATL offer in compromise. However, review and approval authority will remain within the SBSE Compliance Services Department Managers over the Centralized DATL processing units.

All Appeal and Exam Acceptances will be forwarded to Brookhaven Campus for the input of the Form 7249 and to generate the acceptance letter on AOIC for public inspection purposes. Prepare a copy of the Form 7249 for the inclusion in the public inspection file. Brookhaven tax examiners will clearly annotate the AOIC Remarks, “Offer was accepted by Appeals or Exam AO XX, generated Form 7249 and Acceptance Letter for public inspection purposes only.”

Prepare a copy of the Form 7249, Offer Acceptance Report,

Review the Form 7249 and transcripts and redact any visible taxpayer identification information. If the information is not systemically redacted, a grease pencil is the most effective method when manual redaction is required. Do not use marker, ink pens, or white out.

Forward the accepted offer file to the appropriate Monitoring Offer in Compromise (MOIC) function based on the taxpayer's state of residence. MOIC will process offer payments and input appropriate OIC transaction codes.

The following are potential fraud warning signs most identifiable during an interview:

The following are potential fraud warning signs most identifiable during verification of the financial statement:

The fraud indicators below can fall into any of the categories in paragraphs (1) and (2) above:

If indications of fraud are identified, follow the procedures outlined in IRM 5.8.4.18, Potential Fraud Referrals.

Refer to IRM 5.8.4.19, Criminal Investigations, relative to the appropriate actions if the taxpayer is involved in an open criminal investigation.

Taxpayers should submit a properly executed Form 2848 Power of Attorney and Declaration of Representative in order to authorize another individual to represent the taxpayer before the IRS. If POA information is located on CFINK, load the information on the AOIC POA Screen and follow procedures as defined below. Input the representative's information on AOIC and retain a copy of the form in the paper case file. Forward the original for recording on the Centralized Authorization File (CAF). If there are multiple POA’s listed, refer to IRM 5.8.2.3, Initial Processing of Offers in Centralized Offers in Compromise Sites.

Send all original correspondence to the taxpayer and provide a copy to the representative unless the taxpayer has indicated they do not want their representative to receive correspondence. Send a copy of the letter to the authorized representative regardless if the box is checked on the Form 2848 only if the POA is authorized for all periods. If the POA is not authorized for all periods, send the POA a cover letter. .

Individuals who are not entitled to practice before the IRS with respect to a collection matter (such as unenrolled return preparer) may accompany taxpayers to meetings with a completed Form 8821, Taxpayer Information Authorization, or other proper authorization, and receive and provide information that relates to the offer investigation. They are not authorized to represent the taxpayers or sign documents relating to offers in compromise. An 8821 cannot negotiate the terms of the offer.

If the Form 2848 does not include the matter(s) and year(s) that are included on the offer, send a redacted letter to the representative. The letter to the taxpayer may inform him/her that he/she can file a Form 8821 or new Form 2848 that includes all matter(s) and year(s) covered in the offer.

If during the investigation it is discovered that the representative authorized under the POA no longer represents the taxpayer, secure a letter from the taxpayer revoking the POA and document the case history. Remove the POA information from AOIC.

Attorneys, Certified Public Accountants (CPA), enrolled agents, or enrolled actuaries are generally the only practitioners authorized to represent taxpayers before the IRS on collection matters.

During the course of the investigation, a taxpayer may submit a Form 2848 designating a third-party as their representative or power of attorney, or the taxpayer may submit a Form 8821 designating an appointee. When properly completed and filed by the taxpayer, each of these documents should be recognized during an investigation, and interaction with the third party should be governed by the parameters allowed within each of these authorization forms.

If Form 8821 is missing critical information that can only be provided by the taxpayer (e.g., tax years, type of tax, missing taxpayer signature, date) it will be returned to the taxpayer.

Information that may be disclosed to the designee is limited to the type of tax, tax form number, tax years or periods, or specific tax matter that is listed on the Form 8821, item 3.

If Form 8821, item 5a is checked, the designee is also entitled to receive copies of tax information, notices, and other written communication on an ongoing basis for the type of tax, tax form number, tax years, or specific tax matter listed under item 3.

The designee is not authorized to act as the taxpayer’s representative. For example, the designee may not advocate the taxpayer’s position when responding to IRS correspondence.

Where a recognized representative has unreasonably delayed or hindered an examination, collection, or investigation by failing to furnish, after repeated request, non-privileged information necessary to the examination, collection or investigation, the Internal Revenue Service employee conducting the examination, collection, or investigation may be given permission to bypass the representative and contact the taxpayer directly for such information. 26 C.F.R. § 601.506(b) (Statement of Procedural Rules). Prior to contacting the taxpayer directly, the IRS employee must first complete bypass procedures. See IRM 5.1.23.5, By-Passing a Taxpayer's Representative, for procedures to bypass a POA.

This section does not apply to the return of offers deemed not processable or processable offers returned for any of the following reason codes, unless the return was determined to have been in error.

Situations may arise when the reconsideration of a returned offer would best serve the interests of both the Service and the taxpayer. Upon receipt of a return letter, taxpayers may telephone to object to the return of an offer. Below are the criteria for possible reconsideration.

Closed offer cases (other than acceptances) will be retained within the centralized DATL processing units for a period of 2 years. Write or stamp Closed with the closed date on the case file. This file can be sent to the Federal Record Center (FRC). Document AOIC history and case history sheet with the FRC location, box number, ascension number, and date. Refer to Document 12990, Records Control Schedule, and IRM 1.15.4, Retiring and Requesting Records. In addition, this information should be input into AOIC under FRC tracking.

Electronic Exam DATL offers are not retained in FRC, they are retained in CEAS. All other DATL offers can be requested using the DLN located on IDRS with T 290. These are exam only.

For additional information, record retention requirements and input requirements, See IRM 5.8.7.12, Closed File Retention.

In order to summarize activity occurring each week, the centralized DATL units will prepare reports for DATL offers to include:

The report will cover the weekly period ending on Thursday.

At a minimum, the AOIC Transaction Listing (Parts 2 and 3) must be resolved on a weekly basis to ensure all reversing transactions are correctly posted. Additionally, any open IDRS control bases assigned to XXXXXXXXXX (first 2 digits represent the area), must be closed, once the systemic posting error has been resolved. There could be a delay from the time the error is on the AOIC transaction listing to when the control base is opened on IDRS.

Management must keep a binder of all reports pulled throughout the fiscal year with annotations on actions taken to resolve errors that appear on the report. If there are no errors for a certain day those pages must also be placed in the binder for a complete audit trail.

Any unusual errors or an increase of a particular error should be elevated to the SCOIC and Policy staffs.

Documentation must include, but is not limited to:

All documentation must be entered on AOIC.

As is the case with all offer determinations, employees must exercise good judgment. This good judgment needs to be clearly evident and articulated in the case file documentation and should be supported by the known case facts, circumstances, and supporting documents.

Prior to final processing, AOIC must be updated to indicate the correct basis for closing the offer and the dollar amount of the offer considered or adjusted. This will ensure that all final closing reports generated from AOIC reflect the correct basis and dollar amount. The approval levels indicated on closing reports and letters must be consistent with the basis for closure.

Documentation must be recorded the day the action occurs or as soon as practical thereafter.

Specific date must be documented when providing a time-frame to the taxpayer or POA.

IAT provides tools that simplify research, reduce keystrokes, eliminate repetitive typing, and increase the accuracy of regular work processes.

The use of IAT is mandatory and limited to the certain IAT Tools listed below. For User Guides, see the IAT web site at http://iat.web.irs.gov/JobAids/iat.asp

If an IAT tool is not available, or an employee has a problem with the IAT Task Manager, the case should be processed through IDRS, following established procedures. The employee must report the issue to the manager to determine if the issue should be reported to the IAT team. See the IAT Website, for how to report/fix problems with IAT tools.

Additional IAT tools will be added to the following list when one is deemed beneficial and seen as adding quality to Campus Specialty Offer work processes.

IAT tool users can visit the IAT Website, to become a subscriber to the IAT newsletter. The iNews details all ongoing IAT activity with tool retirements and rollouts.

The use of IAT tools are mandatory, if applicable, during the work process. Below is a list of IAT tools used in the DATL unit.