Analysis of and reflections on recent cases and rulings.

Date01 September 2022
AuthorBeavers, James A.

Procedure & Administration

Offer in compromise not deemed accepted

A taxpayer's offer in compromise (OIC) submitted during a Collection Due Process (CDP) proceeding was rejected when the IRS returned the OIC to the taxpayer, not when the IRS issued the notice of determination closing the CDP proceeding. Because the OIC was returned to the taxpayer within 24 months of the date submitted, it was not deemed accepted by the IRS under Sec. 7122(f).


Michael Brown had an outstanding federal income tax liability of over $50 million. In order to collect the portion of that balance due from 2009 and 2010 in November 2017, the IRS issued Brown a Notice of Federal Tax Lien. In response to that notice, Brown timely requested a CDP hearing and indicated he would be filing an OIC. In April 2018, he submitted an OIC of $320,000 for 2009 and 2010 (and other years).

Brown's case was assigned to a settlement officer (SO) in the IRS Appeals Office. When the SO received Brown's OIC, he forwarded it to the Centralized Offer in Compromise (COIC) unit. The COIC determined the OIC met the requirements to be processable and referred it to a collection specialist for consideration.

After considering Brown's OIC, the IRS sent him a letter stating that it had closed his file and was "returning your Form 656, Offer in Compromise" because "[o]ther investigations are pending that may affect the liability sought to be compromised or the grounds upon which it was submitted."The letter further stated: "As of the date of this letter, we are considering your offer closed" and included with the letter was a copy of Brown's original offer packet, which was marked "RETURNED."

For about a year and a half after receiving the letter from the IRS, in his CDP hearing, Brown maintained that the IRS had erred in returning his offer (under the theory that the reason for rejecting the offer--the pendency of other investigations--was "bogus"). In June 2020, however, more than 24 months after Brown had submitted the OIC, he offered a new argument.

He now argued that "only Appeals can make the determination to return the OIC." Because "Appeals did not return the OIC" within 24 months of its submission, he claimed that the OIC was "deemed accepted" under Sec. 7122(f). Under this provision, an OIC is deemed to be accepted by the IRS if it is not rejected within 24 months after its submission date.

The SO assigned to Brown's case did not agree and told Brown he intended to close the CDP case unless Brown wished to propose a different collection alternative. Brown did not do so, and the SO closed the case. In August 2020, the IRS issued a notice of determination in which it concluded that Brown's OIC was properly returned due to an ongoing IRS investigation.

Brown timely petitioned the Tax Court for review. In Tax Court, he filed a motion for summary judgment, again contending that the IRS was deemed to have accepted the OIC under Sec. 7122(f) because it had not rejected the OIC within 24 months of its submission.

The Tax Court's decision

The Tax Court held that Brown's OIC was rejected in November 2018, when the IRS returned it to him. Because this was within 24 months of Brown's submission of the OIC, it was not deemed accepted by the IRS under Sec. 7122(f).

The Tax Court explained that under Regs. Sec. 301.7122-1(d)(2), an OIC becomes pending when it is accepted for processing. An OIC that the IRS returns following acceptance for processing is deemed pending only for the period between the date the IRS accepts the OIC for processing and the date it returns the OIC to the taxpayer.

Regs. Sec. 301.7122-1(d)(1) provides that a taxpayer must submit an OIC "according to the procedures, and in the form and manner, prescribed by the [IRS]."The IRS has prescribed the relevant procedures in Rev. Proc. 2003-71 and in Notice 2006-68. Notice 2006-68 states that "[a]n offer will not be deemed to be...

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