OIC Processing Procedures
When the IRS receives an OIC, if all required returns have been filed, an offer examiner evaluates the offer and, if necessary, requests additional documentation to verify the taxpayer’s financial and other information. The examiner will then make a decision on whether to accept or reject the offer, or whether a larger offer amount is needed to justify acceptance of the offer. If the latter is the case, the taxpayer gets an opportunity to amend the offer. When a compromise is under consideration, the IRS:
-
Usually defers collection proceedings provided the government’s interests aren’t in jeopardy due to the delay;
-
Is prohibited from collecting the tax by levy (but may file a Notice of Federal Tax Lien); and
-
Is prohibited from collecting the tax by levy during the 30 days after rejection of an offer where an appeal of the rejection is being considered.
Note that an offer in compromise isn’t under consideration just because it is received. It must be accepted for processing by the IRS. In fact, an offer is considered accepted for processing by the IRS only when the taxpayer receives acceptance notification from the IRS IN WRITING. According to Rev. Proc. 2003-71, acceptance for processing occurs when the IRS finds that:
-
An offer has been submitted with the correct Form 656 version;
-
The most current version of Form 433-A and/or Form 433-B has been submitted, as appropriate to the situation;
-
The taxpayer isn’t in a bankruptcy situation (the courts and the IRS differ on the issue of whether the IRS should accept offers for processing from taxpayers in bankruptcy proceedings);
-
The taxpayer has complied with all filing and payment requirements;
-
The application fee has been paid, if required; and
-
The offer meets any other minimum requirements the IRS establishes.
If it turns out that the taxpayer has not filed all tax returns that were legally required to be filed, the IRS will apply any initial payment sent with the offer to the tax debt and return both the offer and application fee to the taxpayer. This decision cannot be appealed.
Barriers to Offer Processability
That may cause its return to a taxpayer include:
-
The offer doesn’t meet the minimum requirements;
-
Insufficient information is sent with the offer so that it can’t be evaluated effectively;
-
The taxpayer didn’t supply additional data requested by the IRS within a reasonable time frame;
-
The offer by the taxpayer was submitted simply to delay collection;
-
The taxpayer failed to file a return or pay a liability;
-
The taxpayer filed for bankruptcy;
-
The offer was accepted for processing in error in the first place.
An offer won’t be completely processed if the taxpayer’s estimated tax payments for the current year aren’t paid up to date. If the IRS finds that estimated payments for the current year aren’t up to date, the taxpayer will get a single opportunity to make the required payments before the offer is returned. If an offer is returned because estimates aren’t made, the application fee is forfeited.
To avoid a breakdown of the compromise process, a taxpayer should respond promptly to IRS requests for additional information during the period an offer is being evaluated.
Keep in mind that the return of an offer in compromise isn’t a rejection; the taxpayer doesn’t have the right to appeal it. But if the IRS begins collection activity after the offer is returned, the taxpayer can appeal under the collection due process rules.
The IRS may require extension of the statute of limitations on assessment as a condition of their accepting an offer in compromise.They must, however, let the taxpayer know of the right to refuse to extend or to limit the extension to particular issues or time periods.
What Happens When an Offer Is Withdrawn or Determined Non-Processable?
-
It will be returned to the taxpayer.
-
Any amounts the taxpayer paid when making the offer including the up-front payments are not refundable and are considered payments on tax. Thus, if the offer is rejected the up-front payments will be applied to the taxpayer’s liability. A taxpayer can specify the application of any payment made under the above rules to the assessed tax or to other amounts at the submission of the offer. If a taxpayer fails to specify then the IRS will apply the payments in the best interest of the government.
-
The application fee generally won’t be refunded unless the offer was accepted for processing through error.
Procedures for Withdrawing an Offer in Compromise
-
A taxpayer may withdraw an OIC at any time before its acceptance.
-
The withdrawal request may be made in person or by mail., In such cases, the withdrawal becomes effective when the IRS receives it.
-
A withdrawal request may also be made by fax or telephone., In such case the withdrawal request becomes effective when the IRS mails (or personally delivers) acknowledgement of the request.
-
Once an offer is withdrawn, collection activities can proceed.