A general guideline for Offers in Compromise is that an acceptable offer must be in the best interest of the Service and the taxpayer. Not long ago, the IRS revised the Internal Revenue Manual to clarify rejections “not in the best interest of the government” (NIBIG), and rejections due to public policy concerns. The revisions are based on guidance previously issued on October 23, 2013, in SBSE-05-1013-0076.
Examples of possible reasons for rejection based on NIBIG are where the taxpayer has an “egregious” history of not filing correct returns; or the taxpayer is the responsible person for a related entity, and the entity is not in compliance and there are no efforts to resolve the entity’s outstanding liabilities. See IRM 184.108.40.206 for more examples. The offer examiner should make sure to analyze the taxpayer’s financial circumstances before determining whether a rejection due to NIBIG is appropriate.
Offer examiners should proceed carefully before relying on NIBIG: “Rejections under this provision should not be routine and should be fully supported by the facts outlined in the rejection narrative.” IRM 220.127.116.11.1 (03-07-2014)
According to the Internal Revenue Manual, the offer examiner should also consider a collateral agreement before rejecting an offer based on NIBIG. Once rarely seen, collateral agreements may require the taxpayer to pay the IRS a percentage of income for a few years after the offer is accepted, in addition to the fixed offer amount, for example. Anecdotal evidence suggests that collateral agreements are being negotiated more often since the May, 2012, revisions.
Practitioners and taxpayers considering submission of an Offer in Compromise need to be aware of other important changes. Effective January, 2014, the application fee was increased from $150 to $186, and the Offer in Compromise forms were updated. New offers submitted on the old forms with the old fee are not processable and will be returned.
Practitioners should continue to be alert to current IRS guidance and rules related to Offers in Compromise, in order to negotiate most effectively and obtain the best results for qualified taxpayers. More information about IRS Offers in Compromise can be found here.
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