TAP 04-004

OIC Processing Problem

Statement of Issue:

Taxpayers submit an Offer in Compromise (OIC) Form 656. The OIC is received and processed in one of two centralized locations. The Form 656 is reviewed by an Internal Revenue Service (IRS) employee to determine if the OIC is processable. At this time, the IRS employee checks the database to determine if the taxpayer is current with filing requirements. If a taxpayer has not filed a return for a particular year, Form 656 is returned to the taxpayer as unprocessable.

One requirement for filing an OIC is that a taxpayer must be in compliance and have filed all required tax returns. However, there is no way to indicate on the OIC that a tax return was not filed in a particular year because the taxpayer's income was below the filing requirement and a taxpayer's OIC may be rejected for not filing all tax returns.

Proposal:

Add a sentence to the OIC instructions informing taxpayers who are not required to file a return in a particular year because the taxpayer's income was below the threshold amount to include a statement to that affect with the Offer.

Add an additional note to the section called "When Am I Not Eligible for Consideration of an Offer in Compromise?" on page 2 of the instructions:

Note: If you were not required to file a return in any year, because your income was below the minimum taxable amount for that year include a written statement with your Form 656 that states your reason(s) for not filing in each particular year.

Add an additional item to the "What we Need to Process Your Offer in Compromise" section that explains the reason(s) IRS may return the form to indicate an Offer will be returned if you haven't filed all required federal tax returns, or included an explanation for not filing.

Response Notes:

IRS accepted TAP's recommendations to add instructions informing taxpayers to add a statement to the application package advising IRS of tax periods for which there were no filing requirements to the p the Form 656 and will include the changes in the next revision of the form. Similar instructions will be added to the section called "When Am I Not Eligible for Consideration of an Offer in Compromise but not to the section on "What we Need to Process Your Offer in Compromise" because IRS felt it did not fit and was adequately covered by its addition to the other sections..