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IRS Offer in Compromise Handbook

IRS Offer in Compromise Handbook

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Published by McKenzieLaw
Tax attorney Robert E. McKenzie discuss article on IRS offers in Compromise.
Tax attorney Robert E. McKenzie discuss article on IRS offers in Compromise.

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Published by: McKenzieLaw on Dec 24, 2009
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 CLICK HERE TO READ: Robert E. Mckenzie's Article On Offers In Compromise
5.8.1 Overview Responsibilities5.8.1.3Examination Function5.8.1.4Appeals5.8.1.5Counsel5.8.1.6Taxpayer Advocate Service5.8.1.7Liabilities to be Compromised5.8.1.8Application Fee5.8.1.9The Tax Increase Prevention and Reconciliation Act of 20055.8.1.10Form 656, Offer in Compromise5.8.1.11Interest on the Compromise Amount5.8.1.12Effect of Previous Offers on Collection StatuteExhibit 5.8.1-1Common Abbreviations Used in the IRM (09-23-2008)Introduction
The government, like other creditors, encounters situations where an account receivable cannot be1.
collected in full or there is a legitimate dispute as to what is owed. It is an accepted business practice toresolve these issues through negotiation and compromise.This IRM provides procedures for collection employees to follow when considering a taxpayers proposalto compromise.2. (09-23-2008)Definition
An offer in compromise is an agreement between a taxpayer and the government that settles a tax liabilityfor payment of less than the full amount owed.1. (09-23-2008)Authority
The Secretary of the Treasury is granted broad authority to compromise tax liabilities in IRC Section §7122.1.The Commissioner of Internal Revenue, under Treasury Regulation § 301.7122-1, is authorized tocompromise a liability on any one of three grounds: Doubt as to Collectibility (DATC), Doubt as toLiability (DATL), or to promote Effective Tax Administration (ETA).2.Delegation Order No. 5–1 in IRM 1.2, Organization, Finance, and Management, re-delegates theCommissioner's authority to compromise.3. (09-23-2008)Policy
Policy Statement P-5-100 states:The Service will accept an offer in compromise when it is unlikely that the tax liability can becollected in full and the amount offered reasonably reflects collection potential. An OIC is alegitimate alternative to declaring a case currently not collectible or to a protracted installmentagreement. The goal is to achieve collection of what is potentially collectible at the earliestpossible time and at the least cost to the Government. In cases where an OIC appears to be a viable solution to a tax delinquency, the Serviceemployee assigned the case will discuss the compromise alternative with the taxpayer and,when necessary, assist in preparing the required forms. The taxpayer will be responsible forinitiating the first specific proposal for compromise. The success of the OIC program will be assured only if taxpayers make adequate compromiseproposals consistent with their ability to pay and the Service makes prompt and reasonabledecisions. Taxpayers are expected to provide reasonable documentation to verify their abilityto pay. The ultimate goal is a compromise that is in the best interest of both the taxpayer andthe government. Acceptance of an adequate offer will also result in creating for the taxpayeran expectation of a fresh start toward compliance with all future filing and paymentrequirements. 1.
Offers will not be accepted if it is believed that the liability can be paid in full as a lump sum, installmentpayments extending through the remaining statutory period for collection (CSED), or other means of collection, unless special circumstances exist.2.A DATC offer amount must usually equal or exceed a taxpayer's reasonable collection potential (RCP) inorder to be acceptable. The exceptions are that when special circumstances exist as defined in IRM5.8.4.3, Effective Tax Administration and Doubt as to Collectibility with Special Circumstances, or whenper IRM 5.8.11, Effective Tax Administration, the offer may be accepted on the basis of hardship or ETA.3. (09-23-2008)Objectives
The objectives of the OIC program are: Effect collection of what can reasonably be collected at the earliest possible time and atthe least cost to the government.Achieve a resolution that is in the best interests of both the individual taxpayer and thegovernment.Provide the taxpayer a fresh start toward future voluntary compliance with all filing andpayment requirements.Secure collection of revenue that may not be collected through any other means. 1. (09-23-2008)Process
Revenue Procedure 2003-71, effective August 21, 2003-2 C.B. 517, defines the procedures applicable tothe submission and processing of OIC tax liabilities. Notice 2006-68, 2006-31 I.R.B. 105, providesadditional guidance regarding offers submitted on or after July 16, 2006. This handbook further describes,in detail, those processes.1. (09-23-2008)Timeliness of Offer Investigations
The timeliness of case actions in an offer investigation is important not only to ensure the efficiency of theprocess, but also as a key component of taxpayer satisfaction in this program area. Managers andemployees need to ensure that communications from taxpayers are addressed in a timely manner, and thetimeliness of case actions ensure the length of the offer investigation process is as brief as reasonablypossible. The guidelines for timely case actions outlined in this IRM are intended to provide structure forthe overall offer process and to ensure investigations are completed in a responsive and efficient manner.1.These guidelines are not intended as absolute measures of performance for individual employees.Performance evaluations of individual employees must be based on reviews of the actual work producedby the employees, and take into account any special circumstances that may have impacted the ability of the employees to meet the specified guidelines. In general, unwarranted inactivity gaps in an offerinvestigation should be avoided, and offer managers should establish controls to ensure that cases withunwarranted inactivity gaps are identified and addressed appropriately.2. (09-23-2008)

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