Submitting an Offer in Compromise Through Collection Due Process

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The case of Mason v. Commissioner, T.C.M. 2021-64 shows at least one benefit of submitting an offer in compromise (OIC) through a request for a collection due process (CDP) hearing.  As part of his lessons from the Tax Court series, Bryan Camp has written an excellent post both on the case and the history of offers.  I will try to provide some insights not explicitly covered in Bryan’s post, but if you have time to read just one, I suggest reading his post.

In my clinic, we try to file offers in CDP if possible because we get the chance to go to Tax Court, where the possibility of a reversal exists, such as occurred here.  Except in CDP cases, taxpayers cannot go to court to contest the denial of an OIC.  Bryan prefers that the door to court remains shut because he thinks the process should be inquisitorial and not adversarial.  The current system works primarily in that way, with only a small percentage of cases having the opportunity to go to court and a still smaller group actually going to court with an even still smaller group getting a favorable outcome by going to court.  His point, which is a valid one, is that the cost of going to court is too high compared to the benefits it brings to the system.  My thought is that it benefits the system to occasionally have someone outside the IRS look at how the system is working and set some parameters for the IRS.


In Mason, the taxpayer had submitted an OIC prior to requesting a CDP hearing.  The IRS returned rather than rejected the OIC request.  The IRS returns OICs that either do not meet its processability standards or which relate to cases in which the taxpayer fails to complete some action requested by the OIC specialist.  The IRS returns OICs at the outset because the taxpayer has unfiled returns, has an ongoing bankruptcy case, or because of a host of other reasons stated in section of the Internal Revenue Manual.  My clinic knows the reasons for the return of offers at the outset and almost always has no problem with those.  In every case, after the OIC unit determines that an offer meets the processability requirements and does not quickly return it, an OIC examiner is assigned who then works the case and eventually, several months later, reaches out to the clinic to tell us what additional information it needs.  In almost 15 years of submitting offers for clinic clients, I may have seen one or two offers get accepted without the request for additional information, but in 99% of the cases, the OIC examiner calls after reviewing the file and wants more.  When the OIC examiner calls, the taxpayer and the representative usually have a short window within which to obtain the additional information.  The OIC examiner will state a date in the conversation by which the material must arrive on their desk and state “if X does not arrive by Y date, your offer will be returned and you will not have appeal rights.”  We try very hard to get the newly requested material to the OIC examiner by the requested date and only fail if the lengthy period of darkness waiting for the review of the OIC to conclude has caused us to lose touch with the client.

In the Mason case, a rare reason for returning the offer occurred.  The Masons owed over $150,000.  Owing that much usually buys you the chance to have a revenue officer (RO) work your case.  As someone who primarily represents low-income taxpayers who do not owe enough to buy the services of an RO, I am envious.  I would much rather work with an RO than an Automated Call Site (ACS).  Of course, some ROs are difficult to work with and some ACS responders are good to work with, but by and large I would prefer to work with an RO because most ROs will be responsive and, if it is possible to frame an RO’s work this way, reasonable.  Having an RO means you have someone who can exercise much more judgment and therefore work toward reasonable solutions that ACS would find difficult.

The Masons, however, experienced the downside of having an RO work their case.  The RO assigned to their case appears diligent, competent, and committed to reaching the appropriate result.  For them, this proved a bad combination.  They had valuable assets with which they did not want to part in order to satisfy their large tax obligation.  Shortly after their conversation with the RO, who let them know that they needed to work to pay the liability, they filed an OIC offering about $5,000.  The RO did something I cannot remember seeing before.  The RO wrote to the OIC unit and said that the taxpayers submitted the OIC for purposes of delay and not in a good faith attempt to satisfy their liability.

Had the OIC unit accepted the OIC for processing, it would have taken several months before the OIC came to an end.  It would have ended with a rejection (assuming the Masons stuck to the very low dollar offer) and would have provided them the opportunity to go to Appeals, which could have taken several more months.  At the end of this lengthy process which almost certainly would have resulted in a rejection of the OIC, the case would have gone back into the active collection inventory but might have been assigned to a less diligent RO, if one was assigned at all.  By going the OIC route, the Masons would have suspended the statute of limitations on collection but would have also had access to their assets for the period that the OIC was under consideration and might have benefited on the back end.

To keep this from happening, the diligent RO wrote to try to convince the OIC unit to return the offer at the outset without processing it.  The OIC unit agreed and returned the offer as submitted for delay based upon IRC 7122(g).  This kept the momentum of the collection of the liability going; however, the next step for the RO with taxpayers who would not voluntarily liquidate their assets and pay the tax was to levy.  Before the RO could levy, a CDP notice needed to occur.  While the Masons did not diligently pursue payment, they did diligently pursue their rights and they quite properly filed a timely CDP request.  In making the request they stated a desire for an OIC.

After the normal delays present in a CDP case, an employee of Appeals worked their CDP request.  The Appeals employee looked at their OIC, which mirrored the OIC returned to them earlier, and determined that the OIC unit properly returned the OIC.  Because the OIC unit properly returned the OIC, the Appeals employee determined that they should not receive an OIC through the CDP process without looking at the merits of the OIC but only at the merits of the earlier decision by the OIC unit to return the OIC.

As mentioned before, only a small number of OICs are subject to judicial review and only a tiny fraction of those involve the issue of returned OICs.  Judge Holmes looks at the prior case law involving OICs and gives a good background on those cases.  He determines that the Appeals employee working a CDP case must consider the merits of the offer and cannot simply determine that the prior decision to return the offer was correct.  So, he remands the offer to allow Appeals a second chance.  Unless Ms. Mason, who now pursues the case alone after Mr. Mason’s death, substantially modifies the offer or unless her circumstances have materially changed over the period of this process, it seems likely that Appeals will make a determination that the IRS should not accept the OIC as a collection alternative to levy.  If it makes that decision and the Tax Court does not overturn it, then the case may go back to the diligent RO, or perhaps that RO has now retired, moved, been promoted, or has too large an inventory. 


  1. Jeffrey Cohen says

    I have also had a case where the Revenue Officer intervened and convinced the OIC unit to reject an Offer without consideration.

  2. In this particular case, the taxpayer may have gotten a pyrrhic victory by submitting the OIC through the CDP process rather than the conventional route through the OIC campuses. I am of the school of thought that OICs should generally be submitted through the conventional route rather than through CDP.

    By submitting the OIC through the conventional route, the taxpayer has two opportunities to have his/her OIC considered on the merits- once with the Offer Examiner and once with appeals. If a taxpayer submits an OIC through CDP the taxpayer gets to have his/her OIC examined once on the merits (with the Appeals Officer) then reviewed for abuse of discretion at the Tax Court. There are very few instances where the taxpayers had success proving abuse of discretion at the Tax Court in collections cases, but taxpayers have success at OIC appeals all the time.

  3. My office has had this happen before where we had submitted a completely substantiated, albeit low, offer, but one with supporting documents (listed out in the cover letter and tabbed) and the numbers explained in the cover letter and the RO wrote the OIC unit and said it was for the sole purpose of delay without taking into consideration any of the arguments of substantiation. We called the OIC unit and they will not, as a matter of course, reverse a return offer determination on the merits when the RO makes a delay claim. This has been frequently abused. It is not up to the revenue offer to determine the sufficiency of an offer and to “kill” an offer before it is reviewed by an offer specialist. RO recommendations/comments should be taken into consideration by the offer specialist but not be determinative before it even gets there. I hope this issue gets picked up by TIGTA or TAS in a future report to congress.

  4. Good article. I’ll mention another reason to make the OIC through the CDP process: While Appeals will wait for the OIC Unit to review and make a decision on the OIC, if it is recommended for rejection by the OIC Unit the OIC is then returned to Appeals. And in some cases, a thoughtful IRS Appeals Settlement Officer will see things differently and recommend the offer be accepted. That recently happened for one of my clients. So the first bite at the apple is with the OIC Unit, then with Appeals, and if the CDP is timely, the Tax Court.

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