I recently attended the Tax Court Judicial Conference where I saw and old friend. The friend worked in the General Litigation Division of IRS Chief Counsel’s office for several years before entering private practice a few decades ago. Because the General Litigation Division, which has now merged into Procedure and Administration, had responsibility for answering collection issues for the whole office of Chief Counsel, my friend has a deep knowledge of collection issues gained as a young lawyer working in this division.
When old lawyers get together they like to complain. At the conference he complained to me about an offer case he had submitted on which he had not received an answer in about 18 months. My response was that rather than complaining he should hope that the non-responsiveness continues for another six months at which time the statute will deem the offer accepted. Because he did not remember this addition to IRC 7122 in 2006, it seemed possible to me that others would also not know if it. I know of at least one case where recently the two year period passed with no response. Since the IRS has less and less resources with which to handle the work assigned to it, the possibility of obtaining an acceptance in this manner now seems real and not, as I once thought, theoretical.
read more...Public Law 109-222, Section 509(b)(2) amended IRC 7122 to add subsection (f). Subsection (f) provides that “Any offer-in-compromise submitted under this section shall be deemed to be accepted by the Secretary if such offer is not rejected by the Secretary before the date which is 24 months after the date of the submission of such offer. …” The legislative history states that the subsection applies to offers submitted to the IRS 60 days after May 17, 2006.
I have never had the good fortune to have an offer pass the 24 month mark before hearing from the IRS with a yea or nay. A couple of months ago, I received an email from occasional blogger and clinic colleague, Scott Schumacher, the director of the University of Washington low income tax clinic saying that his clinic had a case that the clinic had submitted to the IRS more than 24 months ago. He said that they had scoured the Internal Revenue Manual and found no mention of what to do when the 24 month period passed. We talked about how to consummate the offer in these circumstances. I suggested sending a letter and the offer payment to the offer unit thanking them for accepting the offer and tendering the offer amount.
I also saw Scott at the Tax Court Judicial Conference where he told me that before his clinic had to take the uncertain step of perfecting the offer to which the IRS had not responded in 24 months, the IRS did in fact accept the offer. That leaves open the question of exactly how to consummate the offer in this circumstance and I welcome comments from anyone who has gone through this or anyone who thinks they know how to complete an offer to which the IRS has not decided in 24 months and for which no guidance exists. I can understand why the IRS does not want to publish guidance on this topic. It probably feels awkward about having to write about what to do when it drops the ball; however, some guidance would be appreciated.
One issue present if the offer is deemed accepted by the passage of time is the terms of the offer. The offer in compromise form, Form 656, in Section 8 imposes a number of terms in subsections (a) through (p) like the one in subparagraph (g) requiring compliance for the next five years with filing and payment. In subsection (c) it imposes the condition that the IRS will take any refund due to the taxpayer for the year the offer is accepted and all prior years. Because these terms are on the form the taxpayer signs in submitting the offer it would seem that they apply even if the offer acceptance occurs due to the passage of 24 months since the taxpayer adopted them as part of the offer in signing the Form 656. One of the terms in Section 8 of Form 656 that may not need to appear there because of the language of the statute concerns the taxpayer’s ability to challenge the liabilities covered by the offer.
Subsection (i) provides that “Once the IRS accepts my offer in writing, I have no right to challenge the tax debt(s) in court or by filing a refund claim or refund suit for any liability or period listed in Section 2, even if I default the terms of the accepted offer .” Does this mean that where the taxpayer obtains acceptance by virtue of the passage of 24 months the taxpayer may still contest the underlying liabilities? If the offer gets accepted due to the passage of time, the language of Section (8) could become important in deciding how the offer acceptance by virtue of passage of time differs from offers accepted by the IRS in the normal fashion. I also solicit comments on this issue from those of you who have offers accepted under this provision.
Another issue not discussed in the statute or in any guidance concerns how long a taxpayer has to pay the offer after the passage of the 24 month period. Once the statute deems the offer accepted, the logical extension of acceptance would be to expect performance within a reasonable period of time after acceptance. The taxpayer’s offer promises to pay a certain amount in full or over time upon acceptance. If the 24 months passes and the taxpayer does nothing, at what point has the taxpayer waived acceptance by not performing on the terms of the offer after acceptance. I find nothing in Section 8 of Form 656 addressing the time period within which a taxpayer should perform after the passage of the 24 months and acceptance of the offer through that method. Could the IRS argue at some point that if the taxpayer does not make payment within a reasonable time after a deemed acceptance that the taxpayer’s failure negates acceptance? I also solicit comments on this aspect if anyone has had a deemed accepted offer rejected for failure to perform.
The deemed acceptance of an offer may become more prevalent as the IRS staffing problems continue to increase. The issue points to the importance of retaining the letter from the IRS indicating receipt of an offer and calendaring an event two years thereafter in case of failure of the IRS to act. The possibility of a time passage acceptance also makes me wonder if changing the terms of the offer might become prevalent if the IRS is not going to look at the offer form until after the 24 months expires. Nothing in the statute requires making the offer terms laid out in Section 8 of Form 656 though I expect the IRS would return an offer with those terms altered where it reviews the offer.
I was impressed that the University of Washington clinic caught the two year time period and wonder if my clinic would have done the same. Even though I knew of the statutory provision, my clinic has not had a practice of calendaring the two year time period. My practice on calendaring offers needs to change. Getting an offer acceptance based on the passage of time is certainly a slow way to learn of acceptance but it might be a very satisfactory way to get what you want and to feel better about the cuts at the IRS which you normally curse while waiting on the phone for a couple of hours.
Very Interesting. I had one case where the IRS did not respond to an OIC during the firdst 2 years. I have no proof but I believe the IRS lost the offer. It took me almost 2 years, including calls to the congressman (not much help) and Tax Payer Advocate (I believe they delivered, for a change) to get an acceptance letter. The letter was received in 2014 but bore the date of 2012. I called the person who signed the letter wondering about predating and was told that these are the instructions but I did not see any in the IRM. Made me wonder if the practice of predating is common at the IRS.
Very lnteresting. I, too, was not aware of the 24 month response period. However, this may be of limited use to me as all my oic (s) are done as a cdp collection collection alternative. This allows a further appeal if the IRS abuses its discretion.
Very interesting, Keith. Thank you for your great blog. My supervising attorney and I discussed this at length and were wondering if there were any drawbacks. Our standard practice is to calendar the response date and then if we don’t hear back by that date we contact the OIC Unit to see what is taking so long, if they need information, etc…
If we wanted to wait and calendar 2 years, are there any negative consequences? We thought perhaps the stress on our clients would be the only reason to get the OIC though the system as quickly as possible. Are we missing anything? Maybe the refund offset for two or three years depending on the submission date?
I will beat Bob Kamman to the punch:
Keith meant to say the IRS has “fewer and fewer” resources.
Great article and such a timely topic given IRS’s current lack of resources.
What happens, when the IRS “returns” the OIC and provides the taxpayer with a 30 day period, within which to submit a “request for reconsideration” but the IRS fails to act, for more than 24 months, upon the taxpayer’s timely-filed “request”?