Required Initial Offer


#1

Have completed the OIC and an offer amount, for a client who exceeds the low income threshold. Since the client exceeds the low income threshold the application fee and 20% initial payment should be submitted with the Offer. The taxpayer does not have the means to make both the application payment and the initial payment. I was looking for some suggestion on the best way to proceed. Wasn’t sure if an explanation of circumstances would still get the offer considered. Client can currently only afford the application fee.


#2

Good evening Duane,

I hope that this message finds you doing well. Whether you know it or not, you have posed a very interesting question.
In fact, TheCPATaxProblemSolver has been the beneficiary of helping a fellow practitioner out and learned a heck of a lot in doing so!

Upon initially reading your question, I ALMOST gave a “knee jerk” answer by replying that “if you failed to send the application fee and 20% initial payment with the initial OIC, your offer would be dead on arrival and flatly rejected”.

However, I decided to do a little research and found the following:

An OIC will be returned as not processable if the application fee is not submitted with the offer or the low-income certification box checked in the applicable section of Form 656. BOTTOM LINE! “SORTA” …Submission of at least $150 toward the application fee is considered a shortfall that should be perfected during the case building process. These offers may be considered processable. Follow IRM 5.8.3 to perfect the offer.
ALSO: If the taxpayer submits the application fee and a portion (but not all) of the required TIPRA payment (either cash or periodic payment) the offer may be considered a processable offer. Follow IRM 5.8.3 to perfect the offer.

SO…How about them Apples??

5.8.2.3.1 (07-28-2015)
Determining Processability

  1. The COIC sites are responsible for determining offer Processability. An OIC will be returned as not processable if one or more of the criteria below are present:
    • Taxpayer in Bankruptcy – An offer will not be considered while a taxpayer is in bankruptcy. See IRM 5.8.2.3.2, Additional Research on Bankruptcy Cases, below for procedures on conducting additional research on bankruptcy OICs prior to returning the offer as not processable.
    • Taxpayer did not submit the application fee with the offer – The application fee must be submitted with each Form 656, Offer in Compromise, or the low-income certification box checked in the applicable section of Form 656.
    Note:
    Submission of at least $150 toward the application fee is considered a shortfall that should be perfected during the case building process. These offers may be considered processable. Follow IRM 5.8.3 to perfect the offer.
    • Taxpayer did not submit the required initial payment with the offer. – (1) Lump Sum Cash offers must include 20% of the offered amount or the low income certification box checked in the applicable section of Form 656; (2) Periodic Payment offers must include initial proposed installment payment or the low income certification box checked in the applicable section of Form 656.
    Exception:
    If the taxpayer submits the application fee and a portion (but not all) of the required TIPRA payment (either cash or periodic payment) the offer may be considered a processable offer. Follow IRM 5.8.3 to perfect the offer.

5.8.3.6 (07-28-2015)
Perfecting Field Cases

  1. Certain critical errors in an offer must be corrected in order to perfect the offer and enable the Service to begin the offer investigation. For field cases, the only issues that will be perfected prior to transfer to the field are the following:
    • Balance of any TIPRA and/or application fee shortfall due at the time of submission
    Note:
    Taxpayer must have submitted at least $150 before requesting any application fee shortfall. If less than $150 was received, the offer will be returned as not processable.
    • The Form 656, Offer in Compromise, is missing a signature
    • The Form 433-A(OIC) and/or 433-B(OIC) is missing or blank
    • There are unfiled tax returns (generally, this will not exceed a 6 year look-back period without managerial approval)
    Note:
    Unfiled tax returns will not be requested when the taxpayer or representative has indicated, either verbally or in writing, that the tax return was not legally required unless internal research proves contrary.
    • Requesting required estimated tax payments
    Note:
    If the request for estimated tax payments is the only perfection issue, the offer will not be returned if the taxpayer fails to respond. The offer will be forwarded to the field drop point after the Combo letter is sent to the taxpayer. See IRM 5.8.3.8.