6-6.100
Attorney General's Authority to Compromise Cases
|
The Attorney General has plenary power to compromise or
settle any civil or criminal case that arises under the internal
revenue laws and that the IRS refers to the Department of Justice
for prosecution or defense.
[updated September 2007]
6-6.120
Attorney General's Authority to Make
Concessions
|
The Attorney General also has plenary authority to concede a
case by dismissing a suit or abandoning its defense. Those
concessions are sometimes referred to as "administrative
settlements," particularly in the context of refund suits.
[updated September 2007]
6-6.130
Delegation of Authority to Compromise and Close
Certain Civil Claims
|
By Tax Division Directive No. 105, the Tax Division has
delegated to the United States Attorneys the authority to
compromise and close certain civil claims. See
Tax Resource Manual 28. The Tax Division delegates compromise
authority only with respect to judgments for collection
that the Tax Division has formally referred, as discussed in
USAM 6-8.300. The Tax Division retains
final authority to compromise all other civil tax claims that the United
States Attorney handles.
[updated September 2007]
[cited in Tax Resource Manual 12]
6-6.140
Delegation of Authority to Release Rights of
Redemption in Certain Cases
|
By Tax Division Directive No. 83, discussed in
USAM 6-6.700,
the Tax Division has delegated to the United States Attorneys the
authority to release rights of redemption. See
Tax Resource Manual 29.
[updated September 2007]
6-6.200
Compromise of Criminal Liability/Civil Settlement
|
As a matter of longstanding policy, the Assistant Attorney
General rarely exercises the authority to compromise civil tax
liability in conjunction with a plea agreement. See
USAM 6-4.360.
[updated September 2007]
6-6.300
Tax Division Approval Required for Compromises or
Concessions
|
Except as set forth in Tax Division Directive No. 105, the
United States Attorney may not enter into any agreement to
compromise, or make any other administrative disposition of, any
case within the jurisdiction of the Tax Division without the
prior approval of the Tax Division. See
Tax Resource Manual 28.
[updated September 2007]
[cited in USAM 6-2.000]
6-6.400
Offers in Compromise—Form of Offer
|
As a general rule, the Tax Division does not require a
taxpayer to use a standard form to make an offer in compromise.
Ordinarily, it is sufficient if: 1) the taxpayer submits a
written offer that the taxpayer or taxpayer's counsel of record
has signed; 2) the offer is definite and unambiguous; and 3) the
offer sets forth clearly the proposed basis of compromise. A
letter from the United States Attorney setting forth the terms of
the taxpayer's offer will not suffice unless the taxpayer or the
taxpayer's counsel signs the letter and specifically
acknowledges, in writing, that the terms set forth in the letter
constitute the taxpayer's offer.
Because the IRS may assert offsets under 26 U.S.C.
§ 6402, the Tax Division generally will not accept an offer
that calls for a refund of a specific dollar amount.
Instead, in refund cases, the offer should be phrased as
scheduling an "overpayment" of tax or of previously paid
interest, calculated in accordance with the terms of the offer.
For the same reason, the offer should provide for "interest as
provided by law" instead of specifying either an amount or
the dates from which the interest is to be computed. The offer
should state clearly whether interest is due from the taxpayer or
from the Government.
[updated September 2007]
6-6.412
IRS Form 433-A or 433-B
|
In tax cases in which the taxpayer bases his or her offer on
an inability to pay, the taxpayer should submit with the offer a
sworn statement of assets and liabilities by completing IRS Form
433-A (available at
http://www.irs.gov/pub/irs-pdf/f433a.pdf)
or 433-B (http://www.irs.gov/pub/irs-pdf/f433a.pdf)
(Collection Information Statement for Wage Earners
and Self-Employed Individuals, or for Business).
[updated September 2007]
6-6.420
Offers Submitted to the United States Attorney
|
Generally, the United States Attorney should forward an
offer, together with any appropriate comments and
recommendations, directly to the Tax Division.
Normally, the taxpayer need not tender payment with an offer,
but the offer should include a specific deadline by which the
taxpayer must pay the amount due under the settlement.
Generally, the taxpayer should make payment no later than 30 days
from the date of the Government's letter accepting the offer.
The United States Attorney's authority to accept or reject
offers in compromise regarding judgments is set forth in
USAM 6-8.300.
[updated September 2007]
6-6.421
Payment of Amount Offered
|
The taxpayer should make payments due by cashier's or
certified check or money order, payable to the "United States
Treasury." If the taxpayer submits a check or money order with
the offer, the United States Attorney should hold the check or
money order pending the Government's action on the offer. If the
Government accepts the offer, the United States Attorney should
deposit the check or money order by the direct deposit (lockbox)
system pursuant to OBD Order 2110.19 (June 23, 1986), and should
advise both the Tax Division and the IRS Service Center of the
deposit. If the Government rejects the offer, the United States
Attorney should return the check or money order to the offeror.
If a bank does not honor any check, or if the taxpayer fails to
make any payment by the due date, the United States Attorney
should immediately advise the Tax Division.
[updated September 2007]
6-6.422
Time for Processing Offers
|
When submitting an offer in compromise to the Tax Division
for approval, the United States Attorney should allow a
sufficient period of time for the Tax Division to act on the
offer. The amount of time required will vary, depending upon the
nature and complexity of the case, and the amount involved. For
example, the Tax Division must submit a settlement involving a
refund or credit in excess of $2 million of income, excess
profits, estate or gift tax, or certain excise taxes to the Joint
Committee on Taxation. For such a case, the Government is likely
to need a minimum of 90 days. Even in a relatively uncomplicated
matter, where the case requires no additional investigation or
submissions, the Government will need a minimum of 45 days.
Additionally, the Tax Division needs time to consult with IRS
counsel or obtain additional information from the IRS. Except in
a case that IRS counsel has classified as S.O.P. (Settlement
Option Procedure), the Tax Division will always obtain the
written recommendation of IRS counsel on an offer in compromise
of a tax case. Further, before the Tax Division can act on any
offer, the IRS may need to prepare additional computations and/or
conduct an investigation. When a settlement is based on
collectibility, the IRS almost always needs to conduct an
investigation.
For all of these reasons, the United States Attorney should
protect the Government's interest by urging the proponent of the
offer and the court to allow the Government ample time to process
an offer.
[updated September 2007]
6-6.430
Offers Submitted to the Tax Division
|
At times, a taxpayer will submit a compromise proposal
directly to the Tax Division in a case handled by the United
States Attorney. In that situation, the Tax Division will
request the United States Attorney's recommendation on the
offer.
During compromise negotiations and the pendency of the offer,
the Tax Division relies on the trial attorney to secure any
additional time needed to accomplish the next step in the court
proceedings. This protects the Government's interest and permits
the Tax Division to take final action on the offer.
[updated September 2007]
6-6.440
Opportunity for Conference Regarding Offers
|
Ordinarily, the Tax Division will grant a timely request to
discuss an offer by the proponent or the proponent's counsel at a
conference in Washington, D.C. Where appropriate, the Tax
Division may request the United States Attorney to participate in
the conference.
[updated September 2007]
6-6.450
Settlement Negotiations
|
When the United States Attorney participates in settlement
negotiations, either alone or in conjunction with the Tax
Division trial attorney, he or she should impress upon both the
taxpayer's counsel and the court two points about settlements in
tax cases. First, the United States Attorney and the Tax
Division trial attorney only have authority to make a
recommendation regarding the offer; neither has authority to
accept it. Second, except as set forth in Tax Division Directive
No. 105, the Attorney General or certain officials of the
Department in Washington, D.C., to whom the Attorney General has
specifically delegated settlement authority, must take final
action on an offer in compromise in tax cases.
[updated September 2007]
6-6.500
Compromises of Government Claims—Statutory
Interest
|
The amount in controversy in a case includes the underpayment
of interest under 26 U.S.C. § 6601. Accordingly, interest
should not be conceded as part of a settlement unless the
Government: 1) faces litigating hazards that affect the
Government's ability to establish its claim in full or 2) should
concede interest in light of the taxpayer's inability to pay. In
a settlement based on collectibility, the taxpayer pays less than
the total amount of the Government's claims, with interest,
because the taxpayer is unable to pay the full amount.
Ordinarily, a settlement based on collectibility should provide
that the taxpayer is not entitled to deduct any part of the
payment for federal income tax purposes. An exception to this
rule may be appropriate only if the United States Attorney
anticipates that the taxpayer will actually pay the full amount
of the tax and penalties, as well as at least some of the
interest, or the tax in question is deductible by the
taxpayer.
[updated September 2007]
6-6.520
Collateral Agreements
|
Generally, if a taxpayer seeks to settle a case because of an
inability to pay, there is a possibility that the taxpayer may
subsequently come into some money or property. The taxpayer may
be an individual or corporate taxpayer, who may acquire future
assets through earnings, inheritance or gifts. Therefore, as one
of the settlement terms in a collectibility settlement, the
United States Attorney should require the taxpayer to enter into
an individual or corporate collateral agreement. See
Tax Resource Manual 30-33.
This agreement, known as a "future
income collateral agreement," requires the taxpayer to pay
increasing percentages of annual income (as defined in the
agreement) over a period of years. The future income collateral
agreement obligates a taxpayer to pay graduated percentages
(usually ranging between 20 to 50 percent) of "annual income"
that exceeds a threshold or floor for each year the agreement is
in force. The United States Attorney can obtain guidance
concerning acceptable terms in collateral agreements, including
the duration of the agreement and the percentages of income, from
the Tax Division's Civil Trial Sections and Office of Review.
[updated September 2007]
6-6.530
Waiver of Net Operating Losses or Bad Debt
Deductions
|
If a taxpayer has any valuable tax attributes, such as net
operating losses or bad debt deductions, and proposes a
settlement based on collectibility, the United States Attorney
should require the taxpayer to waive those tax attributes for
purposes of settlement.
[updated September 2007]
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