An Offer in Compromise (referred to as an offer or OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles a taxpayer’s tax liabilities for less than the full amount owed. Offers are submitted to the IRS for consideration and evaluation. Revenue Procedure 2003-71 explains the procedures applicable to the submission and processing of offers to compromise a tax liability under IRC 7122. The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) also provided additional requirements for submission of an offer. During the offer investigation, the IRS evaluates the taxpayer’s individual circumstances and makes a determination to either return, reject, terminate, accept, or acknowledge withdrawal of the offer. This section provides direction to all IRS employees in Specialty Collection Offer in Compromise and the Appeals Office who analyze taxpayers’ OICs.

Authorities related to this section include:

The director, Collection Policy is responsible for all policies and procedures within the OIC program.

The national program manager, OIC, is responsible for development and delivery of policies and procedures within the program.

The director, Specialty Collection Offer in Compromise (SCOIC) is responsible for the performance of the OIC program and ensuring IRM policies and procedures are followed.

Operation managers, department managers, territory managers, and group OIC managers are responsible for ensuring the procedures are followed and employee actions are timely and accurate.

Operational and program reviews are conducted on a yearly basis by the director, Specialty Collection Offers in Compromise, (SCOIC) and Collection Policy, with the use of data and reports from the Automated Offer In Compromise (AOIC) system and ENTITY case management system. Additional ad hoc reports that provide information on the inventory levels, hours per case, and age of each offer in inventory or at time of closure are also available in the AOIC and ENTITY systems. See IRM 1.4.52, Offer in Compromise Manager’s Resource Guide.

Managerial case reviews are performed to determine if OIC and other applicable procedures were followed, and if the offer amount accurately reflects the reasonable collection potential (RCP) as defined in Policy Statement P-5-100.

National quality reviews and consistency reviews are routinely conducted to ensure program consistency and effectiveness in case processing. IRS may implement procedural changes as a result of these reviews, to improve the quality and effectiveness of the program.

AOIC is used to track offers submitted by taxpayers and record case actions and history. Ability to take action on AOIC is limited to specific offer employees. Additional permissions are provided based on an employee’s duties and responsibilities.

ICS is used by field employees as a method for inventory control and history documentation.

Managers are required to follow program management procedures and controls addressed in IRM 1.4.52 , Offer in Compromise Manager’s Resource Guide.

Managerial requirements for case approval are defined in Del. Order 5-1.

Office of Chief Counsel conducts case reviews on certain offers in accordance with IRC 7122(b) and Treasury Regulations 301.7122-1, Compromises.

The following table is a list of common abbreviations, definitions and acronyms that may be used throughout this IRM.

Additional resources can be found in IRM 5.8, Offer in Compromise.

Employees can find helpful information on these websites:

The Taxpayer Bill of Rights (TBOR) lists rights that already existed in the tax code, putting them in simple language and grouping them into 10 fundamental rights. Employees are responsible for being familiar with and acting in accord with taxpayer rights. See IRC 7803(a)(3), Execution of Duties in Accord with Taxpayer Rights. For additional information about the TBOR, see Publication 5170, Taxpayer Bill of Rights.

The IRS will not consider an OIC under its administrative OIC procedures while a taxpayer is in bankruptcy. When a taxpayer files bankruptcy, the Bankruptcy Code provides procedures to resolve the IRS's claim.

An OIC will not be considered under administrative OIC procedures until the bankruptcy is concluded. In Chapter 7 cases, an administrative compromise with the taxpayer can be considered after the taxpayer has received a discharge. See IRM 5.8.10.2.3, Acceptance of Offer In Compromise After Chapter 7 Bankruptcy. In Chapter 11, 12 and 13 cases, an administrative compromise will not be considered until the taxpayer completes the payments under the plan or the bankruptcy is dismissed by the court.

If a taxpayer is in bankruptcy when an administrative OIC is submitted, the offer is returned as non-processable. The return of the offer does not constitute a rejection of the offer and it does not entitle the taxpayer to file an appeal. See Treasury Regs. 301.7122-1(f)(5)(ii). Even if only one spouse is in bankruptcy, the offer will be returned as non-processable.

If a taxpayer files bankruptcy during a pending offer investigation, the offer will be returned as a processable return.

If the taxpayer files a bankruptcy while a CDP OIC case is open in Appeals, the offer examiner or offer specialist (OE/OS) will issue the return letter and provide a copy to Appeals. If the taxpayer files bankruptcy after an OE/OS has forwarded a rejection recommendation to Appeals, Appeals will be responsible for issuing the OIC closing letter.

If the OE or OS receives a payment from a taxpayer after the taxpayer files bankruptcy and before the OIC is closed as a return, the OE or OS should contact Insolvency regarding what to do with the payment.

When a taxpayer or representative states during an offer investigation that a bankruptcy petition will be filed if the taxpayer’s offer is not accepted, the OE/OS must determine the impact the possible bankruptcy filing may have on the collection of the outstanding tax liabilities. In order to make an informed decision regarding the taxpayer's OIC, consider whether the taxpayer has filed bankruptcy previously and/or if any tax liabilities may potentially be dischargeable.The following procedures will assist in determining the impact a potential bankruptcy filing may have on the offer investigation. Additionally, if the taxpayer or representative says the taxpayer is considering filing bankruptcy, immediately make a determination regarding whether an NFTL is necessary to protect the government’s interest in assets during the offer investigation.

Benefits to the IRS if an OIC is accepted and the taxpayer does not file bankruptcy:

Benefits to the taxpayer if an OIC is accepted and the taxpayer does not file bankruptcy:

While evaluating the acceptability of an OIC when the threat of bankruptcy is a consideration, determine the reasonable collection potential (RCP) as defined in IRM 5.8.5, Offer in Compromise, Financial Analysis. If the amount offered by the taxpayer exceeds the RCP, proceed with the offer investigation. Any special circumstances or hardship issues should also be considered prior to investigating the effect a potential bankruptcy may have on an acceptable offer amount.

If the OIC is not acceptable based on the calculated RCP amount, analyze the potential amount collectible, if bankruptcy proceedings were filed. This should include analysis of the taxpayer’s collection information statement(s), other financial statements, draft bankruptcy schedules (if available), and a determination of which liabilities may be dischargeable. This information will help to determine if the OIC is acceptable based on a potential bankruptcy filing.

When completing the analysis consider the following questions:

In a Chapter 7 proceeding, an OIC may be considered by IRS only after a discharge has been granted or a dismissal has taken place. Once the discharge is entered, the IRS will be able to determine which taxes are discharged and will be able to make a determination of “Doubt as to Collectibility” under its administrative OIC procedures.

For debtors discharged in Chapter 7, where the bankruptcy case is still pending, it is uncertain whether the IRS would still have a valid claim in bankruptcy if an OIC is accepted. Therefore, the RCP should include the amount that the IRS can reasonably expect to recover from the bankruptcy in addition to the amount that can be collected from the taxpayer on non-discharged liabilities or from property outside the bankruptcy.

Refer to IRM 5.9.4.11, Offers in Compromise and Bankruptcy, for discussion on the IRS’s policy relative to specific bankruptcy chapters.

IRM 5.9.4.11(6) provides guidance on the handling of OIC payments prior to filing of a bankruptcy petition and IRM 5.9.4.11(7) discusses payments subsequent to the petition date.

When a taxpayer files bankruptcy after an OIC is accepted, the IRS may need to take specific actions to secure unpaid offer funds or to secure payment of tax through the bankruptcy proceeding. (See IRM 5.9, Bankruptcy and Other Insolvencies, for additional information.)

In accordance with the Bankruptcy Code, the offer should not be defaulted or payments solicited while the taxpayer is in bankruptcy.

When the IRS becomes aware that a bankruptcy has been filed after the acceptance of an OIC, follow the procedures in the table below:

Upon the death of a taxpayer, the IRS loses the authority to accept an OIC from that taxpayer. A termination letter will be generated from AOIC and the offer should be closed with the termination closure option. If verbal contact or contact via Secure Messaging is made with the surviving spouse or POA, explain that consideration of the offer will be terminated and that another offer can be submitted once the probate has been concluded.

If the offer is submitted on behalf of the taxpayer and the taxpayer’s death is prior to the date the taxpayer signed the Form 656 , the offer must be submitted by a party authorized to act on behalf of the estate. If the offer is submitted by someone who is not authorized to act on behalf of the estate, the offer should be returned under processable return criteria. If there is no requirement for probate, the personal representative or any successor in interest (e.g., spouse, trustee, surviving joint tenant, etc.) MAY be authorized to sign on behalf of the taxpayer’s estate. Confirm there is no requirement for probate and that either the successor in interest is appointed personal representative in the taxpayer’s will or that the successor in interest otherwise qualifies. If the offer is returned because an authorized person did not sign it, the open paragraph should be used to discuss the fact the offer must be submitted by someone authorized to act on behalf of the estate. The OE/OS should verify the TC 540 is input on IDRS.

A fiduciary (trustee, executor, administrator, receiver, or guardian) stands in the position of a taxpayer and acts as the taxpayer. A fiduciary with a valid Form 56, Notice Concerning Fiduciary Relationship, does not need to submit a Form 2848 to interact with the IRS. A fiduciary is treated by the IRS as if the fiduciary is actually the taxpayer and not merely a representative of the taxpayer. A fiduciary assumes the powers, rights, duties, and privileges of the taxpayer, until notice is given that the fiduciary capacity is terminated. The fiduciary may also authorize an individual to represent or perform certain acts on behalf of the person or entity by filing a Form 2848. The fiduciary should sign the power of attorney in the fiduciary’s own name and indicate a title, as per Form 56, in the appropriate place on Form 2848. The fiduciary should sign Form 56 before signing Form 2848. For additional information on fiduciary authority, please reference IRM 5.5.1.7.

The IRS generally files a claim in the probate estate, which is preferred for consolidating assets and paying liabilities. Normally in this situation, the offer filed on behalf of a deceased taxpayer will be returned as “other investigation pending” with a description of the probate issue in the open paragraph. In rare cases, the executor may submit an offer on behalf of the decedent’s estate and the IRS would consider the offer. For example, when the IRS is the priority creditor and the executor offers to pay the IRS the full amount of the estate’s RCP, the IRS may choose to consider the offer rather than returning it. If the IRS chooses to consider the offer, the OE or OS should request the assistance of Area Counsel and coordinate with Civil Enforcement Advice and Support Operations (CEASO), if there is an open estate. In many situations where the taxpayer has an estate with assets in probate, the IRS will choose to return the executor’s offer. However, the IRS may choose to consider an offer from the administrator of an intestate estate (when the deceased taxpayer did not have a valid will).

Many times, the OIC under consideration was submitted jointly by both spouses. In that situation, contact with the surviving spouse should be made to determine whether there is a probate proceeding or non-probate/intestate proceeding. See IRM 5.5, Decedent Estates and Estate Taxes, IRM 5.17.13.9, Decedents' Estates, and IRM 5.16.1.2.4 for more information about decedent taxpayers and probate proceedings. A third party authorization (Form 2848, Power of Attorney and Declaration of Representative or Form 8821, Tax Information Authorization) expires with the death of the taxpayer. Do not assume the surviving spouse is the executor for the deceased spouse.

At death, a deceased taxpayer's assets become part of the estate. The estate and the estate administrator become liable to pay the debts of the decedent if they have knowledge of debt owed. If the estate administrator has knowledge of unpaid taxes (through notices or liens) and does not pay the taxes, or distributes assets to other creditors or heirs so that the estate becomes insolvent, the administrator becomes personally liable to pay the outstanding liability under Title 31 U.S.C. Section 3713. See IRM 5.5.3.9, Fiduciary or Transferee Liability. Additional collection avenues that can be used to secure payment from estate administrators, heirs or transferees need to be taken in consideration when investigating an offer.

Absent special circumstances, an offer should not be accepted if it is determined that the government would receive a greater amount through the probate proceedings. If the government would receive a greater amount through the probate court, an offer filed on behalf of a decedent should not be considered due to the federal government's right to full payment or right to a priority position with regard to limited assets. See IRM 5.5.1, Decedent and Estate Tax Accounts, and IRM 5.5.2, Probate Proceedings, for additional information.

If the decedent’s assets are being distributed in accordance with state law due to the taxpayer dying intestate, an offer may be considered if submitted by an individual authorized to act on behalf of the taxpayer’s estate.

When an executor or administrator submits an OIC for a deceased taxpayer, the low income waivers under IRC 7122(c)(3) or the alternative IRS procedure contained in Form 656, section 1, do not apply. Additionally, personal exemptions for bank accounts, vehicles and tools of the trade referenced on Form 433-A (OIC) do not apply for offers submitted on the behalf of deceased taxpayers.

In cases where the taxpayer entity is a business and the owner or sole officer passes away during the offer investigation, it will be necessary to determine the impact upon the existence of the entity as determined by the entity type and state or probate law (see IRM 5.15.1.14, Business Entity Types), as well as what happens to any individual ownership interests in the business. In situations other than sole proprietorships, consulting with Counsel is recommended. If the offer is going to be accepted, secure an amended Form 656 with the signature of the new owner or sole officer, so that there is no doubt the taxpayer entity intended to proceed with the compromise.

An offer may be submitted to compromise Form 706 for estate tax liabilities. See IRM 5.5.7.18, Offers in Compromise on Estate Tax, and IRM 5.17.13, Legal Reference Guide for Revenue Officers, Insolvencies and Decedents’ Estates, for additional information.

These offers should be rare since the estate tax lien arises and attaches to all assets in the gross estate at the date of death. This gives the IRS a priority lien position and unique collection avenues to secure payment of the tax liability.

Consult both federal law, Title 31 U.S.C. 3713, and state law to determine the priority of claims against the estate when determining the RCP. See IRM 5.5.7, Collecting Estate Tax, for additional information.

Under the authority provided by 31 U.S.C. 330 and 31 CFR 10, which is published as Treasury Department Circular No. 230 , Regulations Governing Practice before the Internal Revenue Service (Revised 6/2014), OPR renders final decisions on applications for enrollment to practice, as needed. OPR also makes inquiries into matters under its jurisdiction and institutes disciplinary proceedings against tax practitioners who are found to have violated any part of Circular No. 230.

A pattern of inappropriate conduct is a factor that the OPR will consider in determining whether sufficient evidence exists to suggest a willful violation of Circular 230. Below are some indicators of misconduct by practitioners.

Powers of attorney sometimes establish a pattern on multiple Offer in Compromise cases to attempt to influence the case dispositions to obtain the desired results by:

Powers of attorney sometimes establish a pattern on multiple OIC cases to delay investigations by performing one or several of the following actions:

Powers of attorney sometimes establish a pattern on multiple offer submissions of significant omissions of income or assets, or improper or unsubstantiated discounts on a number of assets. The information provided must be shown to be materially misrepresented, not merely a simple error. The omissions or material misrepresentations could include, but are not limited to, the following:

The badges of practitioner misconduct may also be indicators of potential fraud. (Refer to IRM 5.8.10.10.) The inappropriate misconduct should be discussed with your fraud technical advisor (FTA) if appropriate. If a decision is made to refer the practitioner to TIGTA and/or the Fraud program for potential criminal sanctions, these actions must be clearly documented in the OPR referral.

Employees should be alert to the patterns and/or trends of inappropriate conduct as discussed in IRM 5.8.10.9, Indicators of Potential Practitioner Misconduct. When patterns and/or trends are identified through OICs submitted by a tax practitioner, or when reported to an IRS employee by any person other than an officer or employee of the IRS, the employee should complete and submit Form 8484, Suspected Practitioner Misconduct Report for the Office of Professional Responsibility, to the OPR, and refer the suspected practitioner misconduct for any appropriate disciplinary action.

Circular No. 230, Section 10.53 states a referral should include all of the basic information, including details of why the referral meets the criteria outlined above. The referral should contain the following specific information: the tax practitioner's name, address, telephone number, designation (i.e. attorney, certified public accountant, enrolled agent, enrolled actuary, etc.), a detailed description of the allegations, and any documents that support the allegations. The Form 8484 must be signed by the referring employee’s manager.

Mail, fax, or E-mail the Form 8484, the accompanying narrative, and any other supporting documents to:

Provide a copy of the referral to the National Offer in Compromise Program Manager.

Additional information about reporting suspected practitioner misconduct may be found on the OPR Web Site.

Part A – Practitioner Information: Practitioner information must include the practitioner's name, mailing address, telephone number, fax number, social security number, and CAF number. Indicate whether the practitioner is an attorney, certified public accountant, enrolled agent, enrolled actuary, or appraiser.

Part B – Explanation of Suspected Misconduct: Complete and attach a narrative to the Form 8484. The narrative should be detailed enough to allow the OPR to give the practitioner fair notice of the suspected misconduct. It should list all significant events that illustrate the inappropriate conduct in chronological order, explain how the conduct impacts on the administration of the tax laws, and establish a pattern of misconduct. It should include appropriate quotations from the case history that would support the alleged misconduct. If applicable, hand-written material should be typed. The narrative should be specific and should include: who, what, when, where, and why.

Part C- Your Information: Complete the form with your name, mailing address, and other applicable contact information. Also include the names of other persons who have knowledge of the suspected misconduct.

Part D – Manager Approval: While OPR does not require any particular level of management approval, field group managers or offer examiner unit managers (COIC) should review and approve referrals made by OIC employees before the documents are sent to OPR.

Upon receipt of Form 8484, OPR will provide you with written acknowledgement of the submission.

These procedures provide guidance in situations where the taxpayer's liability has not been determined. These are generally cases where Exam proposes an audit assessment and the taxpayer files a Tax Court petition to contest the pending assessment.

Responsibility of Counsel:

Responsibilities of COIC:

Responsibility of FOIC:

These procedures provide guidance in situations where Area Counsel requests consideration by SCOIC for an offer submitted during a docketed CDP case. This applies when Appeals issued a Notice of Determination on a CDP case where no CDP OIC was considered, the taxpayer filed a Tax Court petition and the CDP became docketed, and then the taxpayer filed a brand new OIC at any point while the docketed CDP case was open.

Responsibilities of Counsel:

Responsibilities of COIC for a new OIC received by Counsel as part of a docketed CDP case (after Appeals’ CDP determination letter was sent):

Responsibilities of FOIC for a new OIC received by Counsel as part of a docketed CDP case (after Appeals’ CDP determination letter was sent):

If a previously considered and rejected CDP OIC is remanded by Counsel or the Tax Court for consideration by Appeals, and Appeals transfers the OIC to COIC or FOIC for consideration of new information:

If a taxpayer files an OIC and states that it should be accepted based on a frivolous position or to delay or impede the administration of federal tax laws, assertion of the penalty under IRC section 6702(b) may be applicable. In this instance, the taxpayer should be given notice that the OIC is based on a frivolous position or reflects a desire to delay or impede the administration of federal tax laws, and allowed 30 days from the date of such notice to withdraw or amend the OIC prior to the assertion of the penalty.

Send a letter to advise the taxpayer that in order to avoid the $5,000 IRC 6702(b) penalty, the taxpayer must withdraw the offer or amend it to remove any references to frivolous or “desire to delay” positions.

If the taxpayer fails to withdraw the offer, review the documentation to verify that the offer includes either a frivolous position or a desire to delay position.

Once the criteria for penalty assessment have been verified, the collection employee will take the necessary steps to have the penalty assessed by preparing a Form 3210, Document Transmittal, addressed to Ogden Compliance Services, Attn: FRP, M/S 4450, Sr. Technical Advisor, 1973 N. Rulon White Blvd, Ogden, Utah, 84404. The following information should be listed on the Form 3210:

The following documents should be attached to the Form 3210:

The group manager will document approval of the penalty assessment by writing "Determination to assess penalty pursuant to IRC 6702(b) approved" on the Form 3210 and sign the Form 3210. The request for penalty assessment can be mailed or E-Faxed to Ogden. Please follow the procedures to request a frivolous penalty assessment, which are outlined in IRM 25.25.10.3, Referrals to the Frivolous Return Program. The Frivolous Return Program at the Ogden Compliance Services Campus will review the documents and process the request for penalty assessment. Follow-up with Ogden if they do not acknowledge receipt of the Form 3210 within 15 days.

Currently, due to programming limitations, the systemic input of certain transaction codes to a MFT 74/76 module is not possible due to the 3 digit plan identifier associated with these assessments. Automated systems do not recognize the identifier number.

Notices are sent when the tax is assessed and every time interest is updated, but the cases do not move beyond status 21, and are therefore not delivered for a collection determination. In some cases, the assessment is reflected on IDRS with no status.

Research of these modules requires a specific format which include:

The abstract code associated with the TC 150 identifies the type of excise tax that is assessed. The abstract codes are shown on Form 5330, Return of Excise Taxes Related to Employee Benefit Plans.

The MFT 74/76 modules should be input onto the AOIC MFT screen. Manually request TC 480. Include the 3-digit plan identifier. In AOIC Remarks, indicate the closing TC 48X requires manual input and annotate the outside of the file by adding “TC” in red after the OIC number.

In some situations, excise tax assessments are made against individuals. Because the MFT 76 is a BMF MFT, the assessments must be posted to SSN+V (which is a BMF entity). Because this is a BMF entity, it cannot be linked directly to the individual SSN in IDRS. Regardless, the assessment is against the individual, and if the taxpayer also owes for tax periods under the SSN, both TINs and liabilities may be put on one Form 656.

Transfer the case on AOIC to the dedicated OIC group. Additional instructions are in IRM 5.8.3.4.

Once assigned to the dedicated group in Territory 1, the offer specialist should take the following actions:

When a NFTL is filed on a MFT 74/76 assessment, the NFTL indicator (TC 582) does not always post to IDRS. In every case, ALS and IDRS must be researched to verify if a NFTL was filed and is properly identified.

If a NFTL has been filed and is not reflected on IDRS, prepare Form 4844 to request input of the TC 582 to each module present on the NFTL with the date the NFTL was recorded.

Forward the request to CCP.

Follow up to verify input before closing the CIP.

If you determine a NFTL is required, follow the instructions below when preparing Form 12636.

Forward the Form 12636 via secure e-mail to the Centralized Lien Operation (CLO), found on SERP under "Centralized Lien Processing" . In your e-mail, state that the NFTL is for an employee benefit plan.

TC 582 for MFT 76 modules should systemically post, but must be verified. TC 582 for MFT 74 will not systemically post and therefore Form 4844 must be prepared to request input of the TC 582 to each module present on the NFTL.

The following actions are required when closing an MFT 74 or 76 case:

Closing actions are not uploaded by AOIC. Additional action may be required as indicated in the chart below.