Section 21. Doubt as to Liability Offers |
5.8.21 Doubt as to Liability Offers
- 5.8.21.1 Overview
- 5.8.21.2 Considering the Liability Issue
- 5.8.21.3 Jurisdiction—Doubt as to Liability
- 5.8.21.4 Examination Considerations
- 5.8.21.5 Determination of Liability
- 5.8.21.6 Offer Accepted
- 5.8.21.7 Offer Withdrawn
- 5.8.21.8 Offer Rejected
- Exhibit 5.8.21-1 Pattern Letter 673(P)
- Exhibit 5.8.21-2 Pattern Letter 241(P)
- Exhibit 5.8.21-3 Pattern Letter 238(P)
5.8.21.1 (01-01-2000)
Overview
- This section provides guidance for examiners in considering doubt as to liability OIC requests.
5.8.21.2 (02-01-2004)
Considering the Liability Issue
- Doubt as to liability exists where there is a genuine dispute as to the existence or amount of the correct tax liability under the law. Doubt as to liability does not exist where the liability has been established by a final court decision or judgment concerning the existence or amount of the tax liability.
- Before a doubt as to liability offer can be accepted, there must be some doubt as to the correctness of the liability. Validity of the offer is determined by evaluating the supporting evidence and circumstances. The taxpayer is required to submit documentation and/or other evidence to support his/her doubt as to liability claim. The evidence available for both parties must be weighed in order to determine the extent of any "doubt" .
Note:
Because the role of Compliance Examination is generally to make determinations of the correct tax liability, acceptance of such offers in compromise by Compliance Examination should be uncommon. (See Section 5.8.21.5(2) below.) The extent of any determination of "doubt" should be in keeping with Policy Statement P–4–117, Examination Authority to Resolve Issues.
- A doubt as to liability offer may not be rejected solely because the Service is unable to locate the taxpayer's return or return information. The taxpayer cannot be required to submit a financial statement for a doubt as to liability offer.
5.8.21.3 (02-01-2004)
Jurisdiction—Doubt as to Liability
- Compliance Examination has jurisdiction over offers based on doubt as to liability, including preparation of the necessary documents and letters to effect their disposition.
- Compliance Collection has jurisdiction of doubt as to liability offers involving the Trust Fund Recovery Penalty and Personal Liability for Excise Tax (IRC Section 4103). Liability offers concerning assessments made during bankruptcy proceedings may also fall under the jurisdiction of Compliance Collection (i.e. inappropriate assessment because automatic stay was in place, and whether liability was discharged in bankruptcy). Penalty offers may be considered by either the Compliance Centers or Compliance Field: Collection or Examination. (See Section 5.8.20.2(4) of this handbook.)
5.8.21.4 (01-01-2000)
Examination Considerations
- An offer in compromise is normally filed by taxpayers in an effort to stop collection proceedings while Examination reconsiders a tax assessment. The examination should be conducted in a manner similar to an audit reconsideration.
- The offer should be examined and additional documents requested from the taxpayer, if necessary. All conclusions should be documented and all arguments raised by the taxpayer addressed in the workpapers. Form 4318 is used to summarize the workpapers.
- Taxpayer contact should generally be made within 30 days. Offers in process over 6 months are considered overaged.
- When considering a compromise based on substitute for return (SFR) assessments, the return must be reviewed to determine if all the taxpayer's income was included in the assessment. If the offer investigation reveals additional income not included in the SFR assessment, the taxpayer will be required to file an amended return to include the income (and the amended return considered with the offer in compromise).
5.8.21.5 (01-01-2000)
Determination of Liability
- If the taxpayer's liability changes as a result of the examination determination, a re-examination report (i.e. Form 4549) is prepared. The line for taxable income per return or previously adjusted should be the corrected taxable income from the previous report. This should be verified from a transcript of account.
- If the re-examination report is based on settlement of the liability (based on, degree of doubt), offer acceptance procedures should be followed. If it is based on determination of the correct tax liability, offer withdrawal procedures should be followed and the excess tax liability abated.
5.8.21.6 (02-01-2004)
Offer Accepted
- Whether the amount offered by the taxpayer is adequate for a compromise based on doubt as to liability will depend on the degree of doubt established. See Section 5.8.21.4 above for further explanation.
- Acceptance of an offer requires special processing procedures outlined in IRM 5.8.8.
- IRM 1.2.2, Delegation Order Handbook, Delegation Order 11, or its successor, delineates approval authority for Offers in Compromise. In general, the Territory Manager is the approving official for Examination OICs. A legal sufficiency opinion by Counsel is required for all offers with total liability amounts of $50,000 or more.
- Form 7249, Offer Acceptance Report, is completed for accepted offers.
- If the OIC is accepted, full payment of the amount offered is expected as a condition of acceptance.
- If the taxpayer is unable to pay the amount offered, it should have also been submitted as a doubt as to collectibility offer (combination offer) and considered initially by Collection. The deferred payment option may be considered for doubt as to collectibility offers but not doubt as to liability offers alone.
- The completed case is routed (via Form 3198, Special Handling Instructions) to the attention of the Offer in Compromise Coordinator. The Coordinator will review the case, secure approval from the Technical Services Examination Group Manager and the Field Territory Manager, issue the acceptance letter [Pattern Letter 673(P)], and prepare and process the appropriate abatement (Form 3870). [See Exhibit 5.8.21–1.]
5.8.21.7 (02-01-2004)
Offer Withdrawn
- Where the examiner and taxpayer can reach an agreement on the correct tax liability, a "compromise" is not required. In order to process the case as agreed it is necessary for the taxpayer to withdraw the offer.
- Any adjustments required to correct the outstanding tax liability are accomplished through abatement of the erroneously assessed tax. The following procedures are completed by the examiner:
- Prepare an audit report, but do not issue the report to the taxpayer. The report must start with tax as previously determined. Verify this from a transcript of account. Explain the recommendation to the taxpayer, with the caveat that it is subject to review.
- Request that the taxpayer withdraw the offer by submitting a letter (statement). An example:
- The taxpayer's signature is always required on the letter of withdrawal. If the offer was filed jointly, signatures of both spouses are required. The taxpayer's representative (per the power of attorney) may authorize withdrawal of the OIC on the taxpayer's behalf.
- Prepare Form 1271, Rejection or Withdrawal Memorandum. Check box indicating offer withdrawn. Do not complete "date of rejection/ withdrawal letter" at the top of the form. A Form 1271 attachment (Form 886–A), is prepared with an analysis of each Summary, Facts as to Liability, and Conclusion.
- Inform the taxpayer that when the offer is withdrawn, this action forfeits any appeal rights and also resumes the running of the statutory period for collection.
- The completed case is routed (via Form 3198, Special Handling Instructions) to the attention of the Offer in Compromise Coordinator. The Coordinator will secure approval from the Technical Services Examination Group Manager or the Field Territory Manager, prepare and process the appropriate abatement, and issue the withdrawal letter [Pattern Letter 241(P)] to the taxpayer. [See Exhibit 5.8.21–2.]
"I hereby withdraw my offer for the tax year (insert year(s)), contingent upon acceptance and processing of a reduction of ($ amount) in previously assessed tax and penalties, respectively, plus interest" .
"I authorize you to apply the ($ if applicable) deposited with the offer against any outstanding account " (or) "and request that the amount of ($ amount) deposited with the offer be refunded to me" .
In another example, in the case where there is no adjustment to the tax liability and the taxpayer agrees, the letter would state:
"I have been advised that my offer cannot be recommended for acceptance, so I withdraw the offer" (and complete deposit statement a indicated above).
The written statement provided to the examiner should generally be an original, and not a copy or facsimile.
5.8.21.8 (02-01-2004)
Offer Rejected
- If the taxpayer does not agree with the examiner's conclusions and will not or does not withdraw the offer, the following procedures are completed by the examiner:
- Prepare a report to reflect any decrease in tax and penalties (based on the correct tax liability determined by the examiner). Do not issue the report to the taxpayer or solicit a signature. A report is not required if no abatement of tax is recommended. If requested, explain the recommendation to the taxpayer with the caveat that it is subject to review. See Section 5.8.25.2 of this handbook regarding refund or application of a deposit.
- Prepare Form 1271, Rejection or Withdrawal Memorandum. Check box indicting rejection. Do not fill in date of rejection letter at the top of the form. Prepare a Form 1271 attachment (Form 886–A), with an analysis of each Summary, Facts as to Liability, and Conclusion.
- File is routed (via Form 3198, Special Handling Instructions) to the Offer in Compromise Coordinator for Independent Administrative Review. See procedures for Independent Administrative Review (IAR) and case closing below. After IAR is completed, the OIC Coordinator will secure approval from the Technical Services Examination Group Manager or Field Territory Manager before the rejection letter [Pattern Letter 238(P)] is issued to the taxpayer. [See Exhibit 5.8.21–3.]
- If the taxpayer does not agree with the examiner's conclusions, the case is processed as a rejection and any partial abatement (in arriving at the correct tax) is made before the file is forwarded for final processing.
- The taxpayer has 30 days from the date of the rejection letter to file an appeal request. If the taxpayer requests an appeal, the file will be forwarded to the Office of Appeals.
Exhibit 5.8.21-1 (01-01-2000)
Pattern Letter 673(P)
Return Address: |
Person to Contact: |
Employee ID Number: |
Telephone Number: |
Refer Reply to: |
Taxpayer ID Number: |
Tax Period: |
Type of Tax: |
Date: |
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[Salutation] |
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We have accepted your offer in compromise signed and dated by you on (date) . The date of acceptance is the date of this letter and our acceptance is subject to the terms and conditions on the enclosed Form 656, Offer in Compromise. In addition to the amount you have offered, the Internal Revenue Service will add interest from the date we accept the offer until the date you completely pay the amount offered. For offers accepted on the basis of doubt as to liability, prompt payment of the amount offered is required. |
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If you fail to meet any of the terms and conditions of the offer, the Internal Revenue Service will issue a notice to default the agreement. After issuance of the notice, the Internal Revenue Service may: |
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Immediately file suit to collect the • entire unpaid balance of the offer. |
Immediately file suit to collect an • amount equal to the original amount of the tax liability as liquidating damages, minus any payments already received under the terms of this offer. |
Disregard the amount of the offer and • apply all amounts already paid under the offer against the original amount of the tax liability. |
File suit or levy to collect the original • amount of the tax liability, without further notice of any kind. |
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If you have any questions, please contact the person whose name and telephone number are shown above. |
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Sincerely, |
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[Signature] |
[Title] |
Exhibit 5.8.21-2 (01-01-2000)
Pattern Letter 241(P)
Return Address: |
Person to Contact: |
Employee ID Number: |
Telephone Number: |
Refer Reply to: |
Taxpayer ID Number: |
Tax Period: |
Type of Tax: |
Date: |
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[Salutation] |
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This refers to your offer of $_, submitted to compromise your liability for the taxpayer period ending (date). |
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[Insert reason A, B, C, D or E.] |
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If you have any questions, please contact the person whose name and telephone number are shown above. |
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Sincerely, |
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[Signature] |
[Title] |
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Optional Paragraphs: |
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A. |
In your letter dated (date), you requested that your offer be withdrawn and asked that the amount of $ __ deposited with the offer be refunded to you. The offer is considered withdrawn as of the date of this letter and the amount deposited will be returned to you. |
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B. |
In your letter dated (date), you requested that your offer be withdrawn and asked that the amount of $__ be applied to your delinquent tax liability. The offer is considered withdrawn as of the date of this letter and the amount deposited will be applied to your account as requested. |
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C. |
In your letter dated (date), you requested that your offer be withdrawn. The offer is considered withdrawn as of the date of this letter and the amount deposited will be returned to you. |
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D. |
During our meeting of (date), you submitted a written request for the withdrawal of your offer. The offer is considered withdrawn as of that date and the amount deposited will be returned to you. |
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E. |
On (date), you just sent is certified mail a letter requesting your offer be withdrawn. The offer is considered withdrawn as of that date and the amount deposited will be returned to you. |
Exhibit 5.8.21-3 (01-01-2000)
Pattern Letter 238(P)
Return Address: |
Person to Contact: |
Employee ID Number: |
Telephone Number: |
Refer Reply to: |
Taxpayer ID Number: |
Tax Period: |
Type of Tax: |
Date: |
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[Salutation] |
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We have investigated your offer in the amount of $__to compromise your liability for the period ending (date) . We cannot accept your offer and we are rejecting the offer for the following reason(s): |
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[optional paragraphs A thru D.] |
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If you accept our decision, please write or call us. We will then ask you to make arrangements to pay the amount of tax, penalties, and interest you owe. |
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If you do not accept our decision and want a conference with an Appeals Officer, you should let us know that you want to protest. You should request the appeal in writing and direct it to the contact person shown above. You should request the appeal within 30 days of the date of this letter. The type of appeal you make depends on the total amount of tax, penalties, and interest you owe. Include any additional information that you want the Appeals Officer to consider. You may still appeal without additional information, but including it will help us to process your request promptly. Follow the instructions below for the type of appeal you may request: |
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If the amount is: |
You should: |
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$25,000 or less |
Send a letter requesting Appeals consideration. Indicate the changes you do not agree with, and the reasons why you do not agree. |
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Over $25,000 |
File a written protest with the following information: |
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Your name, address, social 1. security number and daytime telephone number; |
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A statement that you want to 2. appeal the IRS findings to the Appeals Office; |
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The date and symbols from the 3. letter, or a copy of the letter showing the proposed changes and findings you do not agree with; |
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The tax periods or years 4. involved (as shown on the letter); |
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A list of the changes you do 5. not agree with and why you do not agree; |
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The facts supporting your 6. position on any issue that you do not agree with; |
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Any law or other authority, if 7. any, on which you are relying; |
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You must sign the letter, 8. stating that it is true, under penalties of perjury as follows: |
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"Under penalties of perjury, I declare that I have examined the facts stated in this protest, including any accompanying documents, and to the best of my knowledge and belief, they are true, correct, and complete." |
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If your representative prepares and signs the protest for you, he or she may substitute a declaration stating: |
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That he or she submitted the 1. protest and accompanying documents, and |
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Whether he or she knows 2. personally that the facts stated in the protest and accompanying documents are true and correct. |
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You may represent yourself at your appeals conference or you may be represented by an attorney, certified public accountant, or an individual enrolled to practice before the IRS. Your representative must be qualified to practice before the IRS. If your representative appears without you, he or she must file a power of attorney or tax information authorization with the IRS before receiving or inspecting confidential information. You may use Form 2848, Power of Attorney and Declaration of Representative, or any other properly written power of attorney or authorization for this purpose. |
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Copies of Form 2848 are available from any IRS office, or by calling 1-800-TAX-FORM (1-800-829-3676). If you do not file an appeal request within 30 days from the date of this letter, your offer case will be closed. The date of this letter is the legal rejection date of your offer. |
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If you have any questions, please contact the person whose name and telephone number are shown above. |
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Sincerely, |
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[Signature] |
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[Title] |
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Optional Paragraphs |
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A. |
We do not consider it in the government's best interest to do so. [Specific and further explanation should be provided]. |
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B. |
We have partially abated the original tax assessment. There is no longer a basis for the Offer in Compromise. |
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C. |
We have abated the original tax assessment in full. There is no longer a basis for the Offer in Compromise. |
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D. |
We cannot adept your offer which is currently under Examination through the Tax Equity and Fiscal Responsibility Act (TEFRA). All partnership issues to which you are a party have not been resolved. When all issues have reached settlement, you may submit another Offer in Compromise. |
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