Offers in compromise: IRS updates OIC submission and processing procedures.

• Author: Josephs, Stuart R.
• Position: Federal tax

Rev. Proc. 2003-71, IRB 2003-36, Sept. 8, 2003 updates the procedures for submitting and processing OICs, reflecting tax law changes made by the 1998 IRS Restructuring and Reform Act (P.L. 105-206). Rev. Proc. 2003-71 also includes provisions relating to the new $150 OIC user fee.

Rev. Proc. 2003-71 is generally effective Aug. 21, 2003. However, the user fee provisions are effective for offers submitted after Oct. 31, 2003.

Submitting an Offer

An offer to compromise a tax liability must be submitted in writing on Form 656, Offer in Compromise. None of the standard terms may be stricken or altered, and the form must be signed under penalty of perjury.

The offer should include all liabilities to be covered by the compromise, the legal grounds for compromise, the amount the taxpayer proposes to pay, and the payment terms--which include amounts and due dates. The offer also should contain any other information required by Form 656. The IRS occasionally revises Form 656 and may require offers to be submitted on the form's most recent version, which is available at www.irs.gov.

An offer in compromise should include the legal grounds for compromise and provide enough information for the IRS to determine whether the offer fits within its acceptance policies. The OIC must explain why the offer can be compromised under one of the following legal grounds:

Doubt as to Liability: Doubt as to liability exists when there is a dispute as to the existence or amount of the correct tax liability. Doubt as to liability does not exist where the liability has been established by a final court decision or judgment on the liability's existence.

An offer to compromise on doubt as to liability generally will be considered acceptable if it reasonably reflects the amount the IRS would expect to collect through litigation. This analysis includes consideration of the litigation hazards that would be involved if the liability were litigated. The evaluation of litigation hazards is not an exact science and is within the IRS' discretion.

Doubt as to Collectibility: Doubt as to collectibility exists when the taxpayer's assets and income cannot satisfy the liability's amount.

An offer to compromise based on doubt as to collectibility generally will be considered acceptable if it is unlikely that the tax can be collected in full and the offer reasonably reflects the amount the IRS could collect through other means, including administrative and judicial collection remedies...