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5.8.4  Investigation

5.8.4.1  (11-15-2004)
Overview

  1. This chapter provides:
    • Instructions for conducting the different types of offer investigations.
    • Definitions for considering each possible basis under which an offer may be filed.
    • How to work offers filed under multiple bases.
    • Directions for coordinating activities with other Service functions.

     

5.8.4.2  (11-15-2004)
Doubt as to Liability (DATL)

  1. After initial processing, offers based on Doubt as to Liability (DATL) of a Trust Fund Recovery Penalty (TFRP) or Personal Liability for Excise Tax (PLET) are transferred to area offices for assignment to Offer Specialists. All other Doubt as to Liability (DATL) offers should be forwarded with no initial processing, to Area Office Examination OIC Coordinators.
  2. For offers based on Doubt as to Liability (DATL) of a Trust Fund Recovery Penalty (TFRP) or Personal Liability for Excise Tax (PLET), the decision to accept or reject rests primarily on a reconsideration of whether or not the person assessed was responsible for and willfully failed to pay over the subject tax. Offers on assessments of this nature that were determined by Appeals or that received an Appeal hearing should be transferred to Appeals for consideration.
  3. The taxpayer must offer a dollar amount. An offer for zero dollars on this basis, like any other, is not acceptable and is subject to perfection requirements.
  4. The administrative file should be secured and reviewed to examine the supporting evidence that supported the assessment. New information, testimony or documents presented by the taxpayer should be considered. Refer to IRM 5.7, Trust Fund Compliance Handbook, for a discussion of the factors and evidence that support an assessment of a TFRP or PLET.
  5. A Doubt as to Liability (DATL) offer should be resolved in one of the following ways:
    If… Then…
    No new information is available and the TFRP or PLET file supports the original assessment Reject the offer.
    Another amount of liability is determined and the taxpayer agrees to the finding Prepare and submit the Form 3870 to correct the assessment and secure a withdrawal of the offer or recommend acceptance of the offer for the correct amount.
    Another amount of liability is determined and the taxpayer still does not agree Submit a Form 3870 to correct the assessment and recommend rejection of the offer.
    The Administrative file does not support the assessment Abate the assessment in full and secure a withdrawal of the offer.

     

    Note:

    If new information is presented that raises doubt or the existing information supporting the assessment is weak, consider accepting an offer to avoid the hazards of litigation.

     

5.8.4.3  (11-15-2004)
Effective Tax Administration (ETA) and Doubt as to Collectibility with Special Circumstances (DCSC)

  1. Refer to IRM 5.8.11 for a full discussion on how to investigate and determine acceptability of offers submitted under Effective Tax Administration (ETA) or Doubt to Collectibility with Special Circumstance (DCSC).

    Note:

    Offers Investigators should review any comments in item 9 on the Form 656 to determine if special circumstances should be considered.

     

  2. Effective Tax Administration offers can be accepted only when:
    • There is no doubt the tax is owed and no doubt that the full amount owed can be collected from the taxpayer.
    • The taxpayer has a proven economic hardship or has presented facts that would support acceptance under the public policy/equity basis, and
    • Compromise would not undermine compliance with tax laws.

     

  3. Doubt as to Collectibility with Special Circumstance (DCSC) offers can only be accepted when the taxpayer cannot fully pay the tax due, but has a proven special circumstances that warrant acceptance for less than the amount of calculated reasonable collection potential (RCP).
  4. Factors establishing special circumstances under Doubt as to Collectibility (DATC) are the same as those considered under Effective Tax Administration (ETA). See IRM 5.8.11 for a list of those factors.

5.8.4.4  (11-15-2004)
Doubt as to Collectibility (DATC)

  1. Doubt as to Collectibility (DATC) offers may be worked either in the Centralized Offers in Compromise (COIC) site by Offer Examiners (OE) or in Area offices by Offer Specialists (OS). See IRM 5.8.3 for the list of the types of offers worked by Offer Specialists (OS). Cases assigned to Offer Examiners (OE) in COIC may be forwarded to area offices for assignment to an Offer Specialist (OS) if complex issues requiring a field investigation are identified.
  2. For Doubt as to Collectibility (DATC) offers, the decision to accept or reject usually rests on whether the amount offered reflects reasonable collection potential (RCP). The exception to this rule would be for offers not accepted based on public policy reasons. Reasonable collection potential (RCP) is defined as the amount that can be collected from all available means, including administrative and judicial collection remedies. Generally, the components of collectibility outlined in IRM 5.8.4.4.1 will be included in calculating total RCP. See IRM 5.8.5 for more detail on how to analyze the taxpayer’s financial condition to arrive at the value of each component. In determining the taxpayer’s future ability to pay, full consideration must be given to the taxpayer’s overall general situation including such factors as age, health, marital status, number and age of dependents, education or occupational training and work experience.
  3. Offers should not be accepted where the tax can be paid in full as a lump sum or can be paid under current installment agreement guidelines. Once the ability to make payments is established, the investigating employee must determine if a greater amount can be collected through current installment agreement guidelines than is being offered. If so, the offer should be recommended for rejection.

5.8.4.4.1  (11-15-2004)
Components of Collectibility

  1. The following four components of collectibility will ordinarily be included in calculating RCP for offer purposes:
    Components Definition
    Assets The amount collectible from the taxpayer's net realizable equity in assets.
    Future Income The amount collectible from the taxpayer’s expected future income after allowing for payment of necessary living expenses. (a) For cash offers, it is the amount collectible over the next 48 months (b) For short term deferred offers, it is the amount collectible over the next 60 months (c) For deferred payment offers, it is the amount that is collectible over the life of the collection statute
    Amount Collectible from third parties The amount we could expect to collect from third parties through administrative or judicial action. For example, amounts collectible through assertion of a TFRP, a transferee assessment, nominee lien, or suit to set aside a fraudulent conveyance.
    Assets and/or income that are available to the taxpayer but are beyond the reach of the government Assets that the lien will not attach, such as equity in assets located outside the country.

     

5.8.4.5  (11-15-2004)
Screen for Obvious Full Pay

  1. Offer Examiners (OE) will verify the full pay worksheet as prepared by the Process Examiner (PE).
  2. If the amounts shown by the taxpayer on the Collection Information Statement (CIS) reflect that the taxpayer can fully pay the tax due by either liquidation of assets or through an installment agreement, the offer should be rejected without substantiation or further analysis.
  3. Review the case to ensure no special circumstances exist that would warrant consideration under Effective Tax Administration (ETA).
  4. Taxpayers who have submitted an offer with a Collection Information Statement (CIS) that reflects an ability to fully pay the tax will immediately be issued a rejection letter. In these cases, prepare the Form 1271, Rejection or Withdrawal Memorandum, and attach the Full Pay Worksheet in lieu of the Offer Recommendation Report and Asset/Equity and Income/Expense tables as instructed in IRM 5.8.7.

5.8.4.6  (11-15-2004)
Actions Based on Reasonable Collection Potential (RCP)

  1. Once the reasonable collection potential (RCP) has been calculated, process the case as follows:
    If… Then…
    The screen for obvious full pay shows the taxpayer can full pay based on CIS (See IRM 5.8.4.5) The rejection letter should be issued. (See IRM 5.8.7)
    The offer must be increased in order to be recommend for acceptance Issue Letter 3498 (SC/CG) or contact the taxpayer by telephone to amend the offer to the acceptable amount. If the taxpayer response does not change the case determination issue the rejection letter using the option to increase paragraph.
    The analysis shows the taxpayer can fully pay the tax through liquidating assets and/or installment payments Issue Letter 3499 (SC/CG) or contact the taxpayer by telephone. If the taxpayer response does not change the case determination, issue the rejection letter using the full pay paragraph.
    The offer amount equals or exceeds the RCP and the offer is otherwise acceptable The acceptance letter should be issued. (See IRM 5.8.8.8)
    Special circumstances are identified that warrant acceptance for less than the RCP Consider an ETA offer or DCSC. (See IRM 5.8.11)

     

5.8.4.7  (11-15-2004)
Initial Action, Follow-Up and Closing Action Time Frames

  1. Time frames have been set for completing certain tasks associated with an offer investigation. These time frames vary depending on who is assigned the case.
  2. The timely completion of an offer investigation is an organizational priority. As such, unwarranted inactivity gaps are to be avoided. (See IRM 5.8.1.1.6 for definitions of timely case processing.)

5.8.4.7.1  (11-15-2004)
Initial Offer Action

  1. Within 15 calendar days of the date an offer is assigned in COIC to an Offer Examiner (OE) or within 30 calendar days of the date an offer is assigned to an Offer Specialist (OS), the assigned employee must analyze the new receipt. This analysis should include the completion of an Asset Equity Table (AET) and Income/Expense Table (IET) (to the extent information is available) to preliminarily project case resolution. In most cases, the processability determinations and initial case building actions will have been completed by COIC.

    Example:

     

     

    • Return for failure to make required estimated payments;
    • Rejection due to an ability to full pay based on equity/future income/installment agreement; or
    • Potential acceptance based on preliminary review of financial data.


    Prior to the income and expense analysis of an individual offer where the taxpayer submitted a Form 656-A certification, Offer Investigator will determine whether the taxpayer's income and family unit size at the time the offer was submitted supported the decision not to pay the application fee. If the Offer Investigator concludes that the income for the family size exceeds the levels for which a Form 656-A certification was allowed (i.e., the taxpayer should have paid the application fee), offer processing should immediately cease. Return the offer using letter code "RET-AB " for failure to pay the application fee.

  2. If additional information is required to make a decision, contact the taxpayer or Power of Attorney (POA) to request the additional supporting documents. If it is determined no information is necessary issue a decision letter.
  3. Needed analysis may be accomplished by correspondence, or in person (by telephone, office visit or field visit). Letters available on AOIC such as the combo letter or an additional information letter (L-2844) are appropriate to request additional information.
  4. If the request for information is in writing the correspondence must include:
    1. A list of the specific items/information needed,
    2. A specific deadline for providing the information,
    3. A statement indicating that the offer will be returned without further consideration if all the information is not provided,
    4. The name, phone number and employee number of the investigating employee,
    5. A statement regarding enclosure of Publication 1 and 594,
    6. Include Notice 1326.
    7. A statement indicating that a Notice of Federal Tax Lien will be filed if a decision has been made to file a lien.
    8. Rubber-stamp, or otherwise enter on, all outgoing envelopes containing requests for additional information "URGENT-- TIME SENSITIVE " .

     

  5. If the request for information is in person (by phone, office or field visit) the contact must additionally contain the following:
    1. Verify receipt of Pub. 1 and Pub. 594. If the first conversation is with the Power of Attorney (POA), verify that the taxpayer has received these publications. If the response from either the taxpayer or the POA is yes, ask if there are any questions and answer any questions they may have to ensure there is a clear understanding of their rights. If not received, offer to either explain their rights before proceeding or re-mail the publications to the taxpayer and postpone conversation until they are received and read.
    2. Address any potential special circumstances (e.g. Effective Tax Administration or Doubt as to Collectibility with Special Circumstances) identified during the initial review of documents submitted with the offer.

     

  6. Cases transferred from one office to another should have an AOIC transfer letter sent within 15 calendar days of the transfer, advising the taxpayer of the location of the office where the case has been transferred and providing the taxpayer with a local contact telephone number. Since cases are often reassigned to a post of duty (POD) once received in the Area office drop point, the receiving office will be responsible for sending the transfer letter. If the case cannot be assigned immediately, the taxpayer should be advised of the anticipated date of assignment to an Offer Specialist. A follow up letter should be sent to the taxpayer advising of any delay in assignment if the case is not assigned by the date specified in the original letter.

5.8.4.7.2  (11-15-2004)
Follow-up Actions

  1. In order to ensure timely case processing all in-process offer cases must have follow up dates scheduled for the next appropriate action.
  2. Throughout the investigation follow up actions are required within 15 calendar days after the deadline has elapsed. Follow up actions should be reasonable, based on the facts of the case. Multiple requests for information are not required.
  3. Follow up actions may include:
    • Recommending the case for closure when the taxpayer has clearly failed to provide requested documents or information,
    • Personal contact when the taxpayer has made an attempt to comply with the requested documentation but the provided information is incomplete or unclear, or
    • Recommending acceptance or rejection if the information received is sufficient to make a conclusion regarding the offer.

     

5.8.4.7.3  (11-15-2004)
Case Recommendations and Closing Actions

  1. Case Recommendations
    1. Offer Examiners in COIC must submit recommendation reports (i.e. Forms 1271/7249) within 10 calendar days from the date of the documented case decision.
    2. Offer Specialists must submit closing reports within 15 calendar days from the date of the documented decision.

    .

  2. Closing Actions
    1. Case must be submitted for closing actions (i.e. - dating/mailing of letters, closing on AOIC, etc.) within the defined 10 to 15 calendar days as described above.

     

5.8.4.8  (11-15-2004)
Documentation

  1. Documentation must include but is not limited to:
    • The basis of the processability determination
    • Plans of action
    • Case actions
    • Requests for information/documentation
    • Receipt of requested information
    • Conversations with taxpayers or representatives
    • Results of internal information analysis
    • Special issues or circumstances
    • Financial analysis, if applicable
    • Case decisions

     

    Note:

    Do not repeat information already present on AOIC screens.

     

  2. Documentation should include evaluation of the income, allowable expenses, asset values and encumbrances. It should support and define differences and/or verification of the assets/expenses, including reasons for disallowance of expenses.
  3. COIC employees will use AOIC to document case actions. Field compliance employees will use Integrated Collection System (ICS) to document actions. If ICS is used to record documentation, a closing summary history must be placed on AOIC prior to closing the case, indicating the basis for the closure and that the complete history is available on ICS.
  4. Documentation should be recorded the day the action occurs or as soon as practical thereafter.

5.8.4.9  (11-15-2004)
Notice of Federal Tax Lien Filing

  1. It is the responsibility of the employee to safeguard the government's interest. Employees must exercise judgment in deciding whether or not a NFTL should be filed. See IRM 5.12.2.8 for further discussion on the NFTL.
  3. The initial review of any case must include an analysis of whether a NFTL has been correctly filed on all tax modules owing, is filed in the correct jurisdiction, and whether or not any filed liens should be re-filed. If analysis indicates a lien was erroneously allowed to self-release, appropriate action must be taken to correct the problem.
  4. A NFTL will generally be filed whenever the unpaid balance of assessments exceeds $5,000 and an offer is recommended for rejection or a deferred payment offer is accepted. Circumstances warranting non-filing in the above situations should be clearly documented in the case histories.
  5. In the event a NFTL is filed and the taxpayer exercises Collection Due Process (CDP) rights, it is not necessary to delay processing of the offer to wait for the outcome of the hearing.
    If… Then…
    No lien has been filed and a decision is made to not file a lien until the conclusion of the investigation The case file should be documented that a lien determination was made and the basis for decision to withhold filing. An additional determination will be required at the conclusion of the investigation. Generally, a lien will be filed if the offer is:
    • accepted as a deferred payment offer,
    • rejected
    • returned
    Caution: Remember that an attempt must be made to contact the TP by phone, in person or by letter to advise of the filing before requesting the lien. AOIC combo and rejection letters satisfy the notification requirement.
    A determination is made to file a lien immediately Ensure that an attempt to notify the TP of the proposed filing (by phone, letter, or in person) has been made and documented before requesting the lien be filed. Provide the required appeal rights per IRM 5.12 if the taxpayer objects to the filing. If the lien is filed and a CDP request is received process it immediately following guidelines in IRM 5.1.9.
    Liens were previously filed but in an incorrect jurisdiction Determine whether to file a NFTL in the correct jurisdiction or withhold filing until the conclusion of the investigation. Follow instructions above based on your decision. If the decision is made to withhold the filing until the conclusion of the investigation, an additional determination must be made at that time.
    Liens were filed but have expired Follow instructions in IRM 5.12.
    Liens were filed and are currently in the refiled period Ensure that liens are correctly refiled in all required jurisdictions.
    An offer where the unpaid balance of assessment is $5,000 or more is being rejected or accepted with deferred payment terms A lien will normally be filed on these cases. Circumstances warranting non-filing must be documented in case history.

     

5.8.4.10  (11-15-2004)
Combination Offers

  1. Taxpayers may submit an offer based on Doubt as to Collectibility (DATC), Doubt as to Liability (DATL), Effective Tax Administration (ETA) or any combination of the three. During the offer investigation consider all bases submitted, providing the taxpayer complies with the requests for information needed as each basis is considered.
  2. The offer will be accepted under only one basis. It is the Service’s responsibility to determine the correct basis for acceptance.
  3. If the taxpayer submits the offer under both Doubt as to Collectibility (DATC) and Doubt as to Liability (DATL) or Effective Tax Administration (ETA), the Collection function will determine DATC first. Collection will retain control of the account on AOIC while coordinating with the Examination function on any combination offer. See the chart below for processing instructions.
  4. For offers submitted based on both Doubt as to Collectibility (DATC) and Doubt as to Liability (DATL):
    If… Then…
    A decision is made to accept based on DATC Accept the offer using normal procedures. Do not send any information to Examination. It is not necessary to amend the offer to remove the reference to DATL.
    Reasonable collection potential cannot be determined because the taxpayer fails to provide the requested information, or the taxpayer no longer meets processability criteria Return the offer using normal procedures. Do not send any information to Examination.
    Taxpayer chooses to withdraw the DATL basis only Secure an amended Form 656 removing the DATL basis. Do not send any information to Examination and consider under DATC.
    Taxpayer choose to withdraw the DATC basis Secure an amended Form 656 eliminating the DATC basis. Close the AOIC record as a withdrawal. Annotate the AOIC history indicating the offer is being forwarded to Examination and why. Note: Monitor the case until the TC 482 posts after closing the AOIC record. Then, coordinate with Examination to ensure that the TC 480 jurisdiction code 2 (Exam) and Status 71 are input.
    A decision is made to reject the offer based on the DATC basis Prepare the Form 1271 per IRM 5.8.7 and send to the Independent Administrative Reviewer (IAR). Once approved by the IAR: 1) Send the letter to the TP explaining the reasons for rejection based on DATC, using the following statement: "We have concluded our evaluation of your offer based on Doubt as to Collectibility and are now forwarding it to the following office for consideration of the Doubt as to Liability issue." 2) Assign the AOIC record to 7000 (field) and 6500 (COIC), and3) Forward the entire case file to Examination with a cover memo asking them to expedite evaluation and advise us of the outcome so the AOIC record can be closed or transferred to Appeals if the TP appeals the decision to reject the DATC basis.

     

  5. For offers submitted based on Doubt as to Collectibility (DATC), Doubt as to Liability (DATL) and Effective Tax Administration (ETA):
    If… Then…
    A determination is made to accept under ETA - hardship provisions, but DATL must be determined first Send the offer, any pertinent information and a memo to Examination requesting an expedite investigation of the DATL issues. If Exam responds stating there is no DATL accept as an ETA. If Exam states there is DATL:1) Send the AOIC transfer letter to the TP advising where the case was transferred. In the open paragraph inform the taxpayer that Exam has concluded there is DATL so ETA cannot be considered. 2) Assign the case to 7500, and 3) Advise Exam to notify Collection when the case is completed so the AOIC record can be closed.
    A determination is made to reject under ETA but accept under Doubt as to Collectibility with Special Circumstances (DCSC) Accept under that basis. It is not necessary to amend the offer to remove the other bases. Nothing should be forwarded to Examination.
    Reasonable collection potential (RCP) can not be determined because the taxpayer failed to provide the required information, or the taxpayer no longer meets processability criteria Return the offer using normal procedures. Do not send any information to Examination.
    A determination is made that the offer should be rejected based on DATC but the ETA offer is submitted based on public policy/equity issue(s) requiring Examination consideration. Prepare Form 1271 per IRM 5.8.7 and send to the Independent Administrative Reviewer (IAR). Once approved by the IAR:1) Send a letter to the TP explaining the reasons for rejection based on DATC, using the following statement: "We have concluded our evaluation of your offer based on Doubt as to Collectibility and are now forwarding it to the following office for consideration of the public policy/equity issue. " 2) COIC should assign the AOIC record to 6500 (COIC) and OS should assign it to 7000, and3) Forward the entire case file to Examination with a cover memo asking them to expedite evaluation and advise Collection of the outcome so the AOIC record can be closed or assigned to Appeals if the TP appeals the decision.

     

  6. If a combo offer is forwarded to Examination and they conclude that a different amount of liability is due, generally an adjustment to the account will be made rather than acceptance of the offer. If Examination requests a release of the offer freeze to allow the adjustment, the TC 483 should be manually input to IDRS to temporarily release the –Y freeze. This will allow the adjustment to post to the account(s). TC 480 should be re-input to reconsider Doubt as to Collectibility (DATC) or Effective Tax Administration (ETA) issues as applicable following the adjustment of the account(s).
  7. If Examination accepts, rejects, or secures a withdrawal on a combo offer that is still open on AOIC and assigned to 6500 (COIC) or 7000 (field OS), sufficient information should be secured to close the record on AOIC. If the offer is to be accepted, release the AOIC record to the appropriate end processing center. Coordination with Examination is required to ensure the accepted case file is simultaneously mailed to the same center. The AOIC history should be annotated indicating the basis for the closure.
  8. Offices must print an inventory listing of accounts assigned to 6500 (COIC) or 7000 (field OS) and reconcile it each quarter with Examination to ensure all cases are still open and assigned. Appropriate actions should be taken to resolve mismatches.

5.8.4.11  (11-15-2004)
Responsibility of Offer Specialist (OS) and Field Revenue Officers (RO)

  1. Offer investigators are responsible for working only offer aspects of an investigation. During the offer process employees may discover collection issues that require traditional Revenue Officer (RO) investigation. Generally, if these issues are initially identified by an Offer Examiner (OE) in COIC, the case will be forwarded to a field Offer Specialist (OS), where the issues will be confirmed and if appropriate, action taken to refer the case to a traditional RO. Some of the issues that may be identified and the way they should be processed are:
     
    Issue Procedure
    Transferee, Nominee or Alter Ego When these issues arise during an offer investigation, Offer Specialist (OS) should establish a valuation for the involved asset or income stream. The OS should include the value in computing the reasonable collection potential (RCP) but not actually complete the administrative actions required to establish the liability or secure a lien against the third party. If the value of the involved asset or income stream will be obtained through an accepted offer, that fact should be clearly documented and any transferee, nominee or alter ego remedy not pursued through administrative or judicial action.
    If the offer is rejected or moving toward rejection and time is of the essence due to the dissipation/transfer of assets or statute expiration, an Other Investigation (OI) should be initiated to request the assignment of a RO to complete the required action to establish the transferee, nominee or alter ego liability or lien.
    Levy or seizure related actions If during the course of an offer investigation an Offer Investigator determines that immediate levy or seizure action may be needed the case will be referred to the Collection field function. The offer investigator will initiate an OI request to an RO group outlining the actions needed and providing any additional information that would assist the RO. Upon notification that a jeopardy levy has been approved the Offer Investigator will follow the procedures to close the offer outlined in IRM 5.8.3.19 if both the field and offer manager concur that the offer was filed to hinder or delay collection.
    Suit recommendations Offer Specialists should consider the value of any recovery that may be made through a suit in determining RCP. If the anticipated recovery amount is obtained through an accepted offer this fact should be clearly documented and the suit recommendation not pursued. If the offer is rejected or moving toward rejection and time is of the essence due to the statute expiration for filing suit, an OI should be initiated to request the assignment of a RO to complete the suit recommendation.
    Continuing action on In Business Trust Fund (IBTF) cases Due to the potential for the pyramiding of liabilities and dissipation of assets in IBTF cases, the Offer Specialist will initiate an OI on rejected or returned offers involving ongoing businesses with employment tax liabilities. Because rejected, returned and withdrawn offers do not systemically revert to Status 26 (field assignment), the OI serves as an open assignment until the case is systemically assigned to Status 24 (queue), at which time the collection group manager can assign the case to an RO and close the OI. This process will generally take about 30 days.
    Trust Fund Recovery Penalty (TFRP) and Personal Liability for Excise Tax (PLET) cases It is the responsibility of the traditional RO to complete the investigation and make a determination regarding personal responsibility in these cases. Following the provisions in IRM 5.7.4.1. The process of completing the TFRP or PLET can be ongoing while the offer is pending, but before the determination is finalized. The LEM 5.4, non-assertion criteria, does not apply when an offer is under consideration. The TFRP investigation must be completed, because the RCP for the corporate offer must include not only what can be collected from the corporation, but any amounts that could reasonably be expected to collect from responsible officers on a TFRP assessment. For this reason, a hardship "non-assertion " recommendation against a responsible person should not be proposed if there is any reasonable collection potential (RCP) for that person based on current offer guidelines.
    TFRP investigations should be completed through the point of assessment (i.e. through delivery of Letter(s) 1153(DO) and consideration of any timely protests). See IRM 5.8.4.13 for instructions on processing these investigations in conjunction with open offers.

    Note:

    OIs referred per these instructions should be considered high risk cases, i.e. risk code 100, and processed accordingly.

     

    Note:

    In the above situations , except in the case of TFRP or PLET investigations, an OI will be initiated only after the OIC manager and RO manager have discussed the issue and agree that the situation warrants the issuance of the OI.

     

5.8.4.12  (11-15-2004)
Coordination with Other Functions

  1. Coordination with other functions is sometimes required during offer investigations. The most common coordination occurs between Collection and Examination or Collection and Appeals offices.

5.8.4.12.1  (11-15-2004)
Cases Pending in Examination

  1. During initial analysis of an offer, IDRS should be checked to verify there are no actions for any periods either included or not included on the offer; such as, open audits, underreporter cases, TEFRA proceedings, amended returns pending but not yet assessed. Pending examination cases may be identified by:
    • TC 922 without a CP 2000 process code or TC 290/291
    • TC 976 or 977 without a subsequent tax increase or decrease
    • -L Freeze and/or an AMDIS record
    • Partnership Investor Control File (PIFC) code on AMDIS of 5 indicating an investor with at least one open TEFRA key case linkage

     

  2. If any potential adjustments are identified the assigned Examination or AUR function or employee should be contacted to determine the status of the audit and informed that an offer based on DATC has been received. The decision on how to proceed with the offer should be based on the status of the potential adjustment.

    For example:
    If… Then…
    The TP was involved in abusive tax avoidance transactions (ATAT), appears to have substantial unreported income (UIDIF), or there is another reasonable explanation given by the assigned Examination employee as to why the audit should continue The TP should be advised that the offer investigation cannot proceed until the Exam issues have been resolved. Solicit a withdrawal explaining that it is in the TPs best interest due to CSED suspension. If the TP refuses to withdraw, consider returning the offer using the AOIC reason "Other investigations are pending that may affect the liability sought to be compromised or the grounds upon which it was submitted" .
    The audit is routine and the assigned Exam employee has agreed to close the tax year(s) with no change Proceed with the offer investigation.
    The audit is routine, but nearly concluded, and Examination wishes to conclude and assess the tax. Proceed with the offer investigation. Talk to the TP and the Revenue Agent (RA) to coordinate securing an agreement to the deficiency to expedite assessment. Include the tax year in the acceptance, but do not issue the acceptance letter until the tax is assessed.
    The return has been selected for examination or Automated Under Reporter (AUR) consideration, but not yet assigned. Contact the controlling Examination or AUR function to advise that we are proceeding with the offer investigation.
    The Partnership Investor File Control (PIFC) code on AMDIS is a 5, indicating at least one open TEFRA key case linkage exists Advise the TP that we cannot consider an offer until all TEFRA partnership issues have been resolved. Attempt to secure a withdrawal. If the taxpayer refuses to withdraw, consider returning the offer using the AOIC Return Letter paragraph "Other investigations are pending that may affect the liability sought to be compromised or the grounds upon which it was submitted."
    The Partnership Investor File Control (PIFTD) code on AMDIS is a 7, the TEFRA case is closed Verify with the assigned Examination employee that the assessment was made and include the additional liability(s) in the offer.

     

  3. Within 7 to 14 calendar days prior to accepting an offer IDRS should be rechecked to ensure that there are no new audit issues pending.

5.8.4.12.2  (11-15-2004)
Innocent Spouse Claims

  1. When one spouse files an innocent spouse claim and the other spouse submits an offer, the assigned examination employee should be contacted prior to proceeding to ensure there are no additional reasons to delay the offer investigation until the innocent spouse claim is resolved.
  2. If a taxpayer files a Doubt as to Collectibility (DATC) offer but raises an innocent spouse issue during the investigation, the issue should be discussed with the taxpayer. If appropriate, the offer should be withdrawn and an innocent spouse claim should be forwarded to Examination.
  3. If IDRS indicates that the taxpayer has an open innocent spouse claim, or if a Doubt as to Collectibility offer and innocent spouse claim are filed simultaneously the taxpayer should be requested to withdraw the offer unless the Examination function advises that the claim will be closed immediately with no change. If Examination indicates that the claim appears valid and the taxpayer will not withdraw the offer it may be closed as a return or held pending disposition of the claim.

5.8.4.12.3  (11-15-2004)
Cases Pending or Decided in Appeals

  1. During a Collection Due Process (CDP) or Equivalent Hearing (EH) assigned to Appeals, an offer may be submitted by the taxpayer. Taxpayers also occasionally submit a Doubt as to Collectibility offer during an appeal of a proposed audit deficiency. Appeals retains jurisdiction of both these types of offers, but may send an Appeals Referral Investigation (ARI) to Collection.
    An ARI requesting Collection Information Statement (CIS) verification of a complex nature should be assigned to field revenue officers (RO). The results of the investigation will be reported via memorandum to Appeals and Appeals will conclude the investigation.
    Requests for any expeditious treatment of an ARI will be decided on a case by case basis through a discussion between the two functional managers.
  2. Offers based on Doubt as to Liability (DATL) on Trust Fund Recovery Penalty (TFRP) or Personal Liability Excise Tax (PLET) assessments must be reviewed upon receipt to ensure that the case is not pending or was not already heard in Appeals. If a DATL assessment had previously been determined in Appeals or is found to be currently assigned to an Appeals office, the offer should be removed from AOIC and transferred to Appeals. Coordination should be made with Appeals to ensure that the TC 480 (and if applicable Command Code STAUP to Status 71) is re-input with the proper Appeals jurisdiction code, since removing the offer from AOIC will reverse the TC 480.
    If an offer based on Doubt as to Collectibility (DATC) only is received and there is an open case pending in Appeals, contact Appeals to determine who will have jurisdiction of the offer.

5.8.4.12.4  (11-15-2004)
Open Criminal Investigations

  1. Open criminal investigations can be identified on IDRS by an unreversed transaction code (TC) 914 or TC 916. When these transaction codes are discovered contact must be made with the assigned Special Agent and procedures in IRM 5.1.5 followed. It may be necessary for the group or unit managers to discuss with the Criminal Investigation division (CID) manger to determine the next appropriate action. A decision will need to be made on the appropriate actions to take (including disposition of any application fee or deposit) and what may or may not be discussed with the taxpayer.
  2. Once a taxpayer has been advised of the open criminal investigation, if the assigned Special Agent has no objection, the taxpayer may be asked to withdraw the offer until the criminal matter is resolved. If the taxpayer declines to withdraw the offer a joint decision should be made whether it should be closed as a return or held open until the investigation is closed.

5.8.4.12.5  (11-15-2004)
Offer Submitted Solely to Delay Collection

  1. When it is determined that an offer is submitted "solely to delay" collection, the offer should be returned to the taxpayer without further consideration. The term "solely to delay" collection means an offer was submitted for the sole purpose of avoiding or delaying collection activity. A determination that an offer is submitted solely for the purpose of delaying collection should be apparent to an impartial observer. See IRM 5.8.3.19 for a complete discussion of this topic and procedures to follow when a case meeting this criteria is identified.

5.8.4.13  (11-15-2004)
Procedures for Certain Types of Taxpayers and Liabilities

  1. Certain types of taxpayers and/or liabilities require unique considerations. The instructions described below should be followed when considering cases of this nature.

5.8.4.13.1  (11-15-2004)
Trust Fund Liabilities from Operating Businesses

  1. When an offer is accepted to compromise trust fund tax owed by an operating business, the taxpayer is relieved of a significant operating expense. The effect is to 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. The following procedures apply to all In Business Trust Fund (IBTF) taxpayers, including sole proprietorships, partnerships, as well as corporations.
    1. These taxpayer's must meet the compliance requirements of IRM 5.8.3.4.1.1(1)(a) and must remain in compliance while the offer is being considered. An untimely Federal Tax Deposit (FTD) during investigation will result in a return of the offer.
    2. If financial analysis reveals that the taxpayer cannot pay operating expenses and remain current with taxes (i.e. the business is operating at a loss), all business assets should be valued rather than just valuing the income stream. Close review should be conducted as well to see whether the offer meets the criteria for return as one "solely to delay " collection.
    3. Business tax returns (schedule C, Form 1120, and Form 1065), the taxpayer's balance sheet, income statements, and the Collection Information Statement (CIS) need to be carefully analyzed to arrive at the correct reasonable collection potential (RCP). The following issues should be carefully reviewed and/or considered:
       

     

    1) Depreciation - Do not allow depreciation. Instead allow necessary actual monthly obligations paid to secured creditors on depreciable assets (i.e. autos, equipment or real estate loans).

     

    2) Accounts Receivable - Accounts receivable that are current (i.e. generally less than 90 days past due) should normally not be discounted in arriving at Quick Sale Value (QSV). If these current accounts appear to be fully collectible QSV should be the same as Fair Market Value (FMV).

     

    3) Personal Expenses Paid by the Business - Financial statements must be reviewed to ensure expenses such as car payments, insurance, utilities, etc. are not claimed on both the Form 433-A and the Form 433-B.

     

    4) Compensation to Corporate Officers - Wages and/or other compensation paid to corporate officers in excess of applicable expenses allowable per National and Local standards should generally not be allowed as business expenses.

     

    5) Stock Holder Distributions and Repayment of Loans to Officers - These expenses are discretionary in nature. Distributions of this nature made after the incurrence of the employment tax delinquency should be factored into the reasonable collection potential (RCP) analysis as dissipated assets. Loans to officers should be considered an account receivable and valued according to their collectibility.

     

    6) Potential Recovery of "Priority Taxes" - Trust fund tax plus associated interest is classified as a "priority tax" in the U.S. Bankruptcy code. As such this tax must be paid in full, in a Chapter 11 or 13 payment schedule. If it is probable that the taxpayer will file a Chapter 11 or 13 if the offer is returned or rejected, then an offer should not be considered for less than what would be recovered through the bankruptcy proceeding.

     

    7) Field Visits to Evaluate Business Assets - A field call should be made to validate the existence and value of business assets and inventory for all offers involving operating businesses and that will be recommended for acceptance. The offer specialist should make the call, if practical, or initiate an Other Investigation (OI) to request that a call be made by another revenue officer (RO) if the taxpayer operates in a remote location.

    Note:

    OIs referred per these instructions should be considered high risk cases, code 100, and processed accordingly.

     

     

5.8.4.13.2  (11-15-2004)
Corporate Trust Fund Liabilities

  1. If an offer to compromise trust fund tax is being considered for a corporation that is still in business all the issues outlined in IRM 5.8.4.13.1 above should be considered. In addition, the Trust Fund Recovery Penalty (TFRP) must be addressed.
  2. When an offer is accepted from an employer to compromise trust fund taxes the Service may no longer be able to collect on any related TFRP assessments. Therefore, it is the Service's policy that the amount offered to compromise a corporate employment tax liability must include, in addition to what can be collected from the corporation, an amount equal to what can be collected from all responsible persons, up to the amount of the TFRP plus interest, if the penalty has been assessed.
  3. During initial analysis of an offer received from a corporation involving unpaid trust fund tax the Offer Specialist must determine the Assessment Statute Expiration Date (ASED) of each period and take immediate steps to protect it if expiration is imminent.
  4. The following actions should be taken based on the facts of the case:
    If… Then RO will… Then Offer Specialist will…
    The TFRP has been completed and the assessment processed prior to the time the corporate offer is filed Document this fact on ICS and Form 657 submitted with the offer. Obtain a copy of the Form 4183 and the CIS for each responsible person and proceed with offer investigation.
    The TFRP has not been completed at the time the corporate offer is submitted, but the RO is continuing to complete the TFRP investigation and plans to request assessment Continue holding the balance due accounts in Status 26 until the Form 4183 is approved, Letter 1153(DO) issued, and the assessment requested. Request Status 71 at the time the assessment is processed. Send copies of the signed Form 4183 and CIS on the responsible officers to the Offer Specialist when secured. Obtain a copy of Form 4183 and the CIS for each responsible person and proceed with the investigation. Coordinate with the field RO and if information needed to make a TFRP determination is not received in a reasonable amount of time, return the offer based on failure to provide the requested information.
    The TFRP has been completed but not assessed at the time the corporate offer is submitted and the RO recommends withholding assessment of the penalty until the offer investigation is completed Complete the investigation through issuance of Letter 1153(DO) and process any appeals received. Establish an OI to maintain control of the TFRP case. Send copies of the Form 4183 and CIS for each responsible person to the Offer Specialist. Secure a Form 2750 from each responsible person extending the ASED to ensure there are at least 2 years remaining on the statute from the date the offer was submitted. Obtain a copy of the Form 4183 and CIS for each responsible person from the field RO and proceed with the investigation. Coordinate with the field RO and if a CIS and/or information is needed to make the TFRP determination is not received in a reasonable amount of time, return the offer for failure to provide requested information.
    Trust fund tax is due, the corporate account is not assigned to an RO and the TFRP has not been investigated, or was investigated and was not asserted because the potential assessment was below LEM-V criteria or was potentially uncollectibility from responsible officer. Complete the TFRP investigation, using an OI (coded 100). Follow the chart above based on a decision of whether to assess TFRP or not. OI should be completed within 90 days. Contact a field group to ensure an OI is assigned to an RO to conduct the investigation. Follow the chart above based on the decision of the RO. Coordinate with the RO and if information is needed to make a TFRP determination and it is not received in a reasonable amount of time, return the offer based on failure to provide requested information.
    The ASED has expired without any TFRP assessment   Annotate the expiration in the case history and continue processing the offer determining only the corporation’s RCP. Prepare an expired statute notification and submit to your manager for processing.

     

  5. If a decision is made to accept the corporate offer and the TFRP is not assessed, as a condition of acceptance of the offer, Form 2751, Proposed Assessment of Trust Fund Recovery penalty, and Form 2750, Waiver Extending Statutory Period for Assessment of Trust Fund Recovery Penalty must be secured from each responsible person. The ASED should be extended to a date 2 years beyond the anticipated completion date of all terms and conditions of the offer, the applicable compliance provisions, and any related collateral agreements. The complete TFRP administrative file, including the signed Forms 2751 and 2750 should be sent with the accepted offer file to the appropriate Monitoring OIC (MOIC) unit once the offer is accepted. Should the offer default, that unit will be responsible for returning the TFRP Administrative file to the appropriate area office for assessment.

    Caution:

    Ensure the responsible persons are advised of IRC Section 6801(c) (4)(B) rights to (1) refuse to extend the statute, (2) limit the extension to particular issues, or (3) limit the extension to a particular period of time.
    If the person refuses to extend the statute a decision must be made to either (1) accept the offer without protecting the Service's ability to later assess the penalty, (2) assess the penalty, or (3) reject the offer.


     

  6. When a cash offer is accepted from a corporation and has been paid in full all employees assigned related TFRP accounts should be notified and asked to initiate the Form 3870, Request for Adjustment. If the accounts are not currently in active collection status the Offer Specialist (OS) should initiate the adjustment requests. The Form 3879 should request that the TFRP module(s) be brought to a "zero" balance. If any payment or refund offset has been made on the TFRP the Form 3870 should also include the statement "Do not refund any credits on the module" .
  7. When a deferred payment offer is accepted from a corporation the Form 3870, Request for Adjustment, for each related TFRP should be prepared as in (5) above, but should be attached to the accepted file when it is forwarded to the Monitoring OIC (MOIC) unit. A note should be attached asking that the Form 3870 be processed when the offer amount has been paid in full. Employees assigned TFRP accounts should be notified of the acceptance and should assign all account(s) to 8500.
  8. In the situation where the amount offered by a corporation combined with the payments already made on related TFRP assessments exceeds the total employment tax liability of the corporation for the same tax periods:
    1. Request the responsible person(s) sign irrevocable requests to transfer their payments on the TFRP accounts to the related corporation liability.
    2. Complete and process Form 3870 to accomplish the credit transfer.
    3. Secure full payment of the balance due from the corporation.
    4. Secure a withdrawal of the offer.
       

     

    Note:

    The above situation should be rare. If the combined payments made on the related TFRP assessments exceed the total employment tax liability of the corporation, then the accounting transactions completed by the campus should have posted the related payments to all accounts.

     

5.8.4.13.3  (11-15-2004)
Excise Tax Liabilities

  1. When the Personal Liability Excise Tax (PLET) is assessed at the time we accept an offer from the business, we may still collect from the responsible person any amount not paid by the business. Therefore, do not request abatement of the PLET just because the business's liability has been compromised.
  2. While investigating an offer to compromise excise tax subject to PLET, also:
    1. Determine if the PLET has been assessed.
    2. Follow locally established guidelines if no PLET investigation has been completed. Actual assessment of the PLET may be held in abeyance pending the outcome of the offer investigation.
    3. Verify ASEDs and protect them if expiration is imminent.
    4. Secure a Collection Information Statement (CIS) from each responsible person.


     

    Caution:

    The assessment waiver on the Form 656 does not extend the statute of limitations for assessing the PLET against a responsible person.

     

  3. If the taxpayer should default an accepted offer, an opportunity to assert the PLET will be available at that time. For this reason, when an offer is accepted from a business based in part on our ability to collect the excise tax from responsible persons no PLET will be assessed:
    1. As a condition of acceptance secure the Form 9490, Waiver Extending Statutory Period for Assessment of Personal Liability for Excise Tax, from each responsible person.
    2. Extend the assessment statute 2 years beyond the anticipated completion date of all terms and conditions of the offer; including the applicable compliance provision and any related collateral agreements.

      Caution:

      Insure the responsible person is advised of IRC Section 6501(c)(4)(B) rights to: (1) refuse to extend the statute, (2) limit the extension to particular issues, (3) limit the extension to a particular period of time. If the person refuses to extend the statute a decision must be made to either: (1) accept the offer without protecting the Service’s ability to later assess the penalty, (2) assess the penalty and include the additional liability in the offer, or (3) reject the offer.

       

    3. Forward the Form 9490 to Compliance Services with the accepted offer file. Should the offer default, this file will be returned to the Compliance Area office for processing and assessment of the PLET.

      Note:

      The Form 9490 is not required for any responsible person who makes a designated payment of the excise tax or when a non-assertion decision has been made because the excise tax could not be collected from that person.

       

     

5.8.4.13.4  (11-15-2004)
Partnership Liabilities

  1. Partnership employment tax liabilities are not joint and several as are joint income tax assessments. The Service's ability to collect from the partners is based on state law.
  2. When a partnership liability is compromised for any individual general partner our ability to collect from all other general partners may be affected. Therefore, the amount offered to compromise a partnership tax liability must include what we can collect from the partnership plus what can be collected from each of the general partners. No offer should be accepted to compromise only one partner’s individual liability for the partnership debt.
  3. When investigating partnership offers a Collection Information Statement (CIS) should be secured from the partnership and from all general partners. The reasonable collection potential (RCP) for the partnership must equal what could be collected from the partnership plus what could be collected from all general partners. Generally, an offer based on Doubt as to Collectibility (DATC) from a partnership will not be accepted when the RCP of one or more of the general partners cannot be determined. When it is not possible to secure a CIS from one or more of the general partners, because they cannot be located or they refuse to cooperate or join in the offer, the offer may still be accepted if the investigation is able to establish that there is no collection potential from the non-participating partners.

5.8.4.13.5  (11-15-2004)
Child Support Obligations

  1. While the Service is charged with collecting certain child support obligations, we do not have the authority to compromise them. These accounts are identified on the Non-Master-File with a Masterfile Transaction (MFT) code of 59.
  2. If a taxpayer proposes a compromise that includes a child support liability, Service employees should request that the offer be amended to remove the child support obligation. If the offer is acceptable it can be compromised without including the child support debt. If the taxpayer refuses to remove the child support liability the offer should be rejected using the public policy reason "We do not consider it in the government’s best interest to do so" , adding in the open paragraph "We do not have authority to compromise child support obligations" .

5.8.4.14  (11-15-2004)
Concluding the Offer Investigation

  1. Once the reasonable collection potential (RCP) has been calculated, immediate action should be taken to bring the case to closure. See IRM 5.8.4.7.3 for timeframes within which closing actions must be taken.
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