Purpose. The purpose of this section is to provide the Appeals Technical Employee (ATE) with the procedures necessary to evaluate a taxpayer's appeal of a rejected offer in compromise (OIC). Appeals does not have its own set of rules and procedures for determining reasonable collection potential (RCP) in an OIC case. For this reason, this IRM section does not reiterate what is already in IRM 5.8, Offer in Compromise. Rather, it discusses some of the basic elements of the OIC evaluation process and provides guidance unique to Appeals' role in that process.

Audience. ATEs working OIC cases.

Policy Owner. Policy, Planning, Quality & Analysis (PPQ&A) is under the Director of Case and Operations Support (C&OS).

Program Owner. Appeals Policy is the program office responsible for providing technical and procedural guidance to the Appeals Organization and is under the Director of PPQ&A.

Contact Information. Appeals employees follow established procedures on How to Contact an Analyst. All other employees should contact the Product Content Owner provided on the Product Catalog Information page for this IRM.

Collection, under the Commissioner, Small Business/Self Employed (SB/SE), is responsible for processing and analyzing a taxpayer's offer, negotiating with the taxpayer, making an RCP determination and communicating the final determination to the taxpayer. IRM 5.8.4, Offer in Compromise, Investigation, and IRM 5.8.5, Offer in Compromise, Financial Analysis, contain OIC guidance concerning:

If a taxpayer cannot pay their unpaid liabilities in full or there are circumstances that otherwise place collectibility of their liabilities in doubt, there is a legal basis for compromise under IRC 7122, based on DATC. If the taxpayer has the ability to pay in full, there may still be a legal basis for compromise if it is further determined that such compromise would promote effective tax administration. See IRM 8.23.3.9, Effective Tax Administration Offers (ETA), and IRM 5.8.11, Offer in Compromise, Effective Tax Administration, for guidance on Effective Tax Administration (ETA) offers.

Policy Statement P-5-100 states, in part:

If a taxpayer disagrees with Collection’s rejection of their offer, they can appeal the rejection to the IRS Independent Office of Appeals by requesting such an appeal within the 30-day period commencing the day after the date on the letter of rejection. While Form 13711, Request for Appeal of Offer in Compromise, is generally used, it is not required.

The ATE should research IRM 5.8, Offer in Compromise, and related interim guidance to evaluate Compliance actions, decisions and valuation methods for OICs and to ensure that Collection properly followed its procedures. The ATE’s evaluation of an OIC must be independent of the decision rendered by Collection.

Standard Appeals conference practices are found in IRM 8.6.1, Conference and Settlement Practices, Conference and Issue Resolution.

The ATE will not request information or evidence (from any party) solely for the purpose of strengthening the government's case.

IRC 7122(d)(2) requires IRS to publish schedules of national and local allowances designed to ensure that taxpayers seeking to compromise their tax debts have an adequate means to provide for basic living expenses. This section further requires that IRS (including Appeals) "shall determine, on the basis of the facts and circumstances of each taxpayer, whether the use of the schedules published under IRC 7122(d)(2)(A) is appropriate and shall not use the schedules to the extent such use would result in the taxpayer not having adequate means to provide for basic living expenses."

ATEs who evaluate appeals of rejected OICs must be knowledgeable in the procedures detailed in IRM 5.8, Offer in Compromise, other parts of the IRM, and the law and regulations governing OICs and Appeals, such as:

When evaluating offers, Collection contacts the taxpayer via telephone or letter explaining why it is proposing to reject the offer. This contact provides the taxpayer with the rationale and financial analysis for Collection’s preliminary conclusion and an opportunity for the taxpayer to supply additional information or, if applicable, to amend the offer to reflect the RCP determined by Collection.

If Collection rejects the offer, copies of Collection's IET and AET should be attached to its rejection letter.

As a result of the preliminary determination contact and IET and AET information provided with the rejection letter, a taxpayer should be fully aware of why the offer was rejected. The Form 13711, though not mandatory, directs the taxpayer to provide in the appeal:

The ATE will sustain rejections only for the reason Collection stated in its rejection letter to the taxpayer that was signed by the appropriate delegated official. For the exceptions to this rule, see IRM 8.23.4.4(2), Sustaining Offer Rejection.

As stated in IRM 8.23.3.2, the ATE will research IRM 5.8, Offer in Compromise, and related interim guidance to evaluate Collection actions, decisions and valuation methods for OICs. The ATE’s evaluation of an OIC must be independent of the decision rendered by Collection. Standard Appeals conference practices are found in IRM 8.6.1, Conference and Settlement Practices, Conference and Issue Resolution.

The ATE must be knowledgeable in the procedures detailed in IRM 5.8, IRM 8.23, and other parts of the IRM and administrative policies and procedures such as those listed in IRM 8.23.3.2 above.

The ATE will not re-examine agreed RCP issues that were previously addressed during the investigation by Collection. This does not include correcting errors that are strictly computational. A strictly computational error is one that does not involve judgment but involves simple math. Correcting strictly computational errors should be uncommon but may occur in the following general circumstances:

Appeals employees will not attempt to identify and value any additional assets. In addition, Appeals employees should not revise the value of an asset to an amount that is higher than previously determined by Collection.

In collection issue cases, the taxpayer may submit new information while the case is in Appeals. Any new information should be considered, particularly if it pertains to an issue disputed at the time of rejection. New information pertaining to an issue that was not in dispute at the time of rejection may also be considered if voluntarily provided by the taxpayer. See IRM 8.23.3.4.1.3 for guidance on information that should generally be referred to Collection for an initial review.

A case will not be returned as a premature referral where Collection did not fully develop certain issues. Weigh Collection’s development of the issue versus information and testimony provided by the taxpayer, and make the decision based upon those factors. See also IRM 8.23.2.5, for premature referral issues on appealed OIC cases. Unless it is at the taxpayer's request, information will not be reviewed by Appeals if it was located in the case file at the time of rejection, was available to Collection at the time of rejection, or provided by the taxpayer with the request for appeal and was not developed by Collection, shared with the taxpayer and included on the IET or AET.

A financial statement that is less than 12 months old from the date it was received in Appeals will not be updated and will be considered verified since it was provided to Collection and they reviewed or had the opportunity to review it. Use the RECDATE of the OIC work unit to determine when the case was received in Appeals.

The ATE will not contact the taxpayer to secure an updated financial statement if the information is less than 12 months old or if the information has become outdated as a result of IRS delay. However, in a situation where Appeals does need updated financial information from the taxpayer, an updated Form 433-A(OIC) and/or 433-B(OIC) is typically not necessary. Pen and ink changes to the existing Form 433-A/B(OIC) are sufficient. See IRM 8.23.3.4.1.2, which pertains to review of supplemental information.

The ATE is responsible for addressing taxpayer compliance obligations only as stated in IRM 8.23.2.5, Premature Referral Issues, and IRM 8.23.2.7, When the Taxpayer Does not Remain in Compliance.

A taxpayer who had a periodic payment offer rejected by Collection is not required to continue making the periodic installment payments while the case is being considered in Appeals. See IRM 8.23.3.2.1.1. The TIPRA requirement to make periodic installment payments ended when Collection rejected the offer. However, if the ATE secures an amended periodic payment offer, then the taxpayer must once again start making the periodic installment payments proposed in the amended offer. See IRM 5.8.4.25, Periodic Payments Required with Offer in Compromise Submissions, for guidance on TIPRA payment requirements for amended offers.

Document all significant case actions in the case activity record in a timely, accurate and complete manner.

In a non-CDP OIC, the ATE will review the taxpayer’s written appeal for the specific items that are in dispute. The specific disputed items present on the IET/AET completed by Collection or the taxpayer’s written request for appeal will be used to identify the disputed items.

If new information requiring further development is provided during consideration of an offer, the ATE will issue an ARI to Collection via Form 2209, Courtesy Investigation, to consider the new information. Collection’s response to the ARI will be shared with the taxpayer.

If Collection’s response to an ARI includes a comment that the offer should be accepted, the ATE will adopt the recommendation. If Collection’s response is not to accept or no recommendation is made, the ATE will review the information that was provided by both the government and the taxpayer and determine whether or not to accept the offer. See IRM 8.23.3.4.1.3 for examples when an ARI may be needed.

In the interests of good tax administration, when rejection of an offer is sustained but the taxpayer is a possible candidate for consideration of acceptance under another basis, the ATE will assist the taxpayer by explaining further options as outlined in IRM 8.23.3.5.1.

While these circumstances are not common, the ATE’s recommendation to accept an offer may include a condition that the taxpayer enter into a collateral agreement with respect to future income. This is not considered raising a new issue.

Follow IRM 5.8.6, Offer in Compromise, Collateral Agreements, with regard to collateral agreements. In addition to the terms specifically stated in the offer, collateral agreements enable the government to either collect funds or restrict a taxpayer's ability to claim future losses or credits. Do not use them to allow the taxpayer to submit an offer for a lower amount than the RCP if the case dictates. Usage of collateral agreements should not be routine. The ATE should secure a collateral agreement only if significant recovery is expected or the taxpayer has identifiable future losses or credits. It may be appropriate to secure a collateral agreement when a significant increase in income is expected.

Do not secure a future income collateral agreement

Do not secure a collateral agreement if taxpayer amends the offer to Collection’s RCP, or greater, and Collection did not consider a collateral agreement as part of an acceptance.

If a future income collateral agreement is secured, the agreement can be approved by same level of approval as that of the offer. See IRM 5.8.6.2.1, Offer in Compromise, Collateral Agreements, Future Income, for additional information.

Use standard collateral agreements whenever possible to aid in the monitoring of the agreements. The standard agreements are listed below:

The collateral agreement must be signed by the Appeals official authorized to approve the underlying offer. See IRM 5.8.6.2(4), Collateral Agreements. To determine which Appeals official must sign the underlying offer, refer to current Delegation Order 5-1, found at IRM 1.2.2.6.1.1, Acceptance Authority, and on the Appeals OIC web page.

While IRS does not have the authority to compromise tax periods that were settled by Department of Justice (DOJ), IRS may accept an offer on the non-DOJ periods only, and secure a collateral agreement that the offer will default if the DOJ settlement terms are not fulfilled. Contact Area Counsel for assistance in preparing such a collateral agreement.

When an offer is accepted to compromise trust fund tax owed by an operating business, the taxpayer may be relieved of a significant operating expense which could grant the delinquent taxpayer an economic advantage over competitors who are in tax compliance. Recovery of the unpaid trust fund tax amount is a significant issue when considering an offer from a business taxpayer. In the interest of "fairness to all taxpayers" the Service must be cautious to avoid providing financial advantages to those taxpayers through the forgiveness of employment tax debt, as this may be detrimental to competitors who are remaining in compliance with their tax obligations. Procedures in IRM 5.8.4.22.3, Offers from Operating Businesses, must be followed when considering an appealed offer from all In-Business Trust Fund (IBTF) taxpayers, including sole proprietorships, partnerships, LLCs and corporations.

For offers to compromise trust fund tax, Collection must address all issues discussed in IRM 5.8.4.22.1, Trust Fund Liabilities, before sending the non-CDP offer case to Appeals. This includes:

Per IRM 8.23.2.5.2, Premature Referral Issues - Other Issues, return the case to Collection as a premature referral if the trust fund tax is not fully paid or the TFRP(s) is not assessed or not in the process of being assessed, unless Collection has clearly documented either a non-assertion determination or the case being under Law Enforcement Manual (LEM) criteria.

The chart below contains IRM references for offers involving various other issues:

If it is determined that there is no basis to accept a DATC, the offer may still be accepted if it is determined that doing so:

It is not a requirement that the taxpayer specifically ask for consideration of “special circumstances.” IRM 5.8.11, Offer in Compromise, Effective Tax Administration, contains information about ETA offers and DATC offers where the taxpayer presents "special circumstances" (DCSC) as a basis to accept the offer and the procedures for evaluating such offers. If the ATE identifies special circumstances or if taxpayer raises issues, and these circumstances or issues meet either ETA or DCSC criteria, as defined in IRM 5.8.11, Effective Tax Administration, the case history must address these issues as well as support the final Appeals decision.

Under ETA, the taxpayer does not dispute being financially capable of paying the liability in full. To accept an ETA offer, the taxpayer must establish that:

Under DCSC, the taxpayer does not have the ability to pay in full and does not dispute being financially capable of paying more than the amount being offered. To accept a DCSC offer, the taxpayer must establish that:

ETA and DCSC offers require a more subjective evaluation. Although IRM 5.8.11 is comprehensive, it is not possible to contemplate every situation to which ETA may apply.

ETA and DCSC offers based upon economic hardship are not uncommon. For purposes of ETA and DCSC offers, the definition of economic hardship is found in Treas. Reg. 301.6343-1(b)(4)(i). Often a taxpayer presents circumstances reflecting one or more of the factors outlined in IRM 5.8.11 or closely resembling many aspects of an example cited in the IRM or Treas. Reg. 301.7122-1, but the case for ETA or DATC-SC acceptance for the amount proposed by the taxpayer falls apart when actual dollars are factored in. A decision in an ETA or DCSC hardship offer requires a three-tiered approach:

Offers based upon public policy or equity considerations are more rare.

If the taxpayer requests acceptance of an offer for less than RCP on the basis of special circumstances unrelated to economic hardship, the request must be reviewed by the NEH-ETA team in Austin, TX.

For initial investigation and analysis of an NEH-ETA, ATEs must send the NEH-ETA on an ARI to the group manager of the NEH-ETA group at mailbox: *SBSE NEH-ETA OIC or e-fax 855-839-6211 with an ATM-approved "Effective Tax Administration Non-Hardship OIC Referral Check Sheet" . The referral checksheet may be found at NEH-ETA Referral Checksheet at the Appeals Offer in Compromise web page.

See Delegation Order 5-1 at IRM 1.2.2.6.1 and on the Appeals OIC web page.

Consideration of an OIC submitted by a single taxpayer must be terminated upon the death of that taxpayer. The date of termination and the date for the TC 482 is the date of the taxpayer's death. A sample OIC Termination Letter is available on the Appeals OIC web page.

If the offer under consideration was submitted jointly by a husband and wife, and during consideration, one spouse dies, the IRS no longer has the authority to accept the joint offer. The surviving spouse has the option of amending the joint offer to only the surviving spouse. Follow the procedures in IRM 5.8.10.4.1, Offer in Compromise, Special Case Processing, Death of Taxpayer, to determine whether to continue with consideration of the jointly-submitted offer.

The ATE’s role in a rejected offer is to resolve the disputed issues. Although a taxpayer may express an interest in alternative resolutions when it is apparent that an offer is not a viable option, the ATE will not consider alternative resolutions for a non-CDP offer that cannot be accepted.

If an offer cannot be accepted, the ATE must communicate the reason(s) why and discuss alternatives (such as installment agreements and Currently Not Collectible status, as applicable) that the taxpayer may pursue with Collection. Do not refer the taxpayer back to COIC or FOIC offices. Close the offer and refer the taxpayer to www.IRS.gov to determine if they qualify for a payment plan. Advise the taxpayer to wait approximately two weeks after they receive the letter regarding the offer closure before submitting any request through Online Payment Agreement (OPA). They may also contact IRS Telephone Assistance at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses).

NFTL filing determinations are not to be made by the ATE. Notify the taxpayer verbally or in writing that Collection may file an NFTL after the case is closed. If the taxpayer indicates intent to file a Collection Appeal Request, refer them to the Collection employee who worked the initial case and close the OIC following normal procedures.

A taxpayer entering into either a DATC or ETA offer agreement must agree to comply with all filing and payment obligations under the Internal Revenue Code for a period of 5 years after the offer is accepted. See Form 656, Section 7.

If a taxpayer fails to meet any of the terms of the offer, the Service has the right to default the offer, reinstate the compromised liability, and pursue collection action against the taxpayer. If the liabilities are jointly owed and the offer was jointly submitted, the default provisions apply only to the party who failed to comply. See Form 656, Section 7.

IRM 1.2.2.6.1.4, Delegation Order 5-1 (Rev. 5), Termination Authority, grants the Monitoring Offer in Compromise Unit (MOIC) the authority to default any offer where the taxpayer is not proposing an alternative solution to the potential default. If the taxpayer proposes an alternative (such as an modification of an offer) and Appeals initially accepted the offer, Appeals will consider the taxpayer’s potential default.

MOIC refers the potential default to Appeals on Form 2209, Courtesy Investigation, and provides the following additional information:

Upon receipt of the potential default case in Appeals, the case will be opened as an offer on ACDS in order to place time on the specific case. APS should note it as a pending defaulted offer in compromise by using feature code "DO" .

Generally, all potential default offer cases will be worked by the Brookhaven Appeals office. Exceptions to this may be as follows:

When working a potential default case and the ATE becomes aware of the death of a taxpayer, the offer can no longer be considered. The ATE will:

If the offer in default was accepted as part of a CDP hearing, the taxpayer may be entitled to a retained jurisdiction hearing with Appeals. See IRM 8.22, Collection Due Process, concerning retained jurisdiction. Do not establish a retained jurisdiction case on ACDS. It should be noted on ACDS as a defaulted offer and not a new offer.

If the taxpayer was not able to remedy the potential default issue, the ATE may default the offer or settle the offer for the amount already paid per procedures outlined in IRM 8.23.3.13, Modification of a Compromise, and not default the offer.

If the taxpayer is deceased, the ATE will verify TC 540 was input, and if it was not, request that APS manually input the TC 540. The potential default case will be closed to MOIC advising them that the taxpayer is deceased, that the TC 540 was requested and the results of any ARI that was issued to Collection Advisory.

In cases where the taxpayer is unable to pay the balance of an accepted offer, the balance of a non-rebate erroneously issued refund, or the balance of the contingent liability under the terms of a collateral agreement, and the investigation reveals that extreme hardship or other circumstances exist which would justify that a default is not in the best interest of the government, then the Service may:

A Form 656 is not required to make the proposal, and there is no other standard form for such a proposal. The proposal should be submitted in letter format and addressed to the Commissioner of the Internal Revenue.

If Appeals initially accepted the offer, Appeals will consider the taxpayer’s proposed modification of the compromise.

Further substantive information that is provided to Appeals by the taxpayer should be referred by the ATE via an ARI request to the Collection Drop Point manager that originally investigated the offer. It is recommended to send the ARI request by fax or e-mail to the Drop Point Manager.

In Appeals, Modification of a Compromise cases will generally be assigned to Brookhaven Service Center Appeals for considerations but may also be assigned as follows:

For information on CDP hearings on defaulted OICs, refer to IRM 8.22, Collection Due Process.

When working a potential default case and the ATE becomes aware of the death of a taxpayer, it must be determined whether there is an estate. If this determination was not made prior to the potential default offer case being assigned to Appeals, an ARI may be needed. The ARI should be issued to Collection Advisory to determine if there is an estate and to request that Collection Advisory file a proof of claim for the balance owed on the offer. The ATE will hold the potential default case open until Collection Advisory responds to the ARI. If there is no estate, the ATE will simply close out the offer case as satisfied following procedures in this section.

If the taxpayer is deceased, the ATE will verify the TC 540 was input, and if it was not, request that APS manually input the TC 540.

When making an acceptance recommendation for a modification of a compromise proposal, the case must be forwarded to Counsel for a legal sufficiency review if the original offer was subject to that review. The documents to forward to Counsel include:

To prepare the Form 7249 for modified terms of an accepted offer:

See IRM 8.23.4.8, Modification of a Compromise, for final procedures to close out such cases.

An accepted OIC is an agreement that is binding on both the government and the taxpayer. After acceptance, further inquiry into matters relating to the accepted OIC is precluded, except where one or more of the following is identified:

Although such situations will be very uncommon, it may be necessary to consider a request to rescind or default an OIC or modify an accepted OIC. Refer to IRM 5.8.9, Offer in Compromise, Actions on Post-Accepted Offers, for complete guidance in these situations.

Where Appeals accepted the OIC, Appeals is responsible for making the determination to rescind the OIC and will also be responsible for completion of all required actions identified in IRM 5.8.9, Offer in Compromise, Actions on Post-Accepted Offers.

If Appeals receives a referral from Collection to consider rescission due to a potential fraud issue, the fraud issue should be developed to a point no less than having agreement by the Fraud Technical Advisor that the potential for fraud exists. See IRM 5.8.4.18, Offer in Compromise, Investigation, Potential Fraud Referral. This refers only to a fraud concern and not to any of the other items identified in (1) above.

For purposes of issue tracking and to review for possible policy implications, rescission recommendations made by Appeals will be forwarded to the Appeals Director of Case and Operations Support with jurisdiction over the OIC program prior to taking any final actions.

The presence of identity theft (IDT) issues does not prohibit consideration of an offer. Each case will need to be considered on its own merits since there may be unique issues impacting the case decision.

If an offer is accepted that involved IDT issues, information on the IDT period(s) must be provided to MOIC with the acceptance file and documented in ACDS and in the "remarks" section of Form 5402. Make the remarks on Form 5402 to be easily seen by APS so that APS can make the appropriate notation in AOIC.