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. See 38 U.S. Op. Atty. Gen. 98 (1934). No compromise or settlement is final until approved in writing by the Attorney General or an authorized delegate.
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.
6-6.130 - Delegation of Authority to Compromise and Close Certain Civil Claims
The Tax Division has delegated to the United States Attorneys the authority to compromise and close certain civil claims. See Tax Division Directive No. 139 located in 28 C.F.R. Pt. O, Subpt. Y, App., “Redelegation of Authority to Compromise and Close Civil Claims.” The Tax Division delegates compromise authority to the United States Attorney only for judgments that the Tax Division has formally referred to the United States Attorney for collection, as discussed in USAM 6-7.300. The Tax Division retains final authority to compromise all other civil tax claims that the United States Attorney handles.
Rather than using the term “settlement offer,” Tax Division Directive 139 refers to “offers in compromise”; this term is not to be confused with the Offer-in-Compromise procedure administered by the Internal Revenue Service in accordance with 26 U.S.C. § 7122.
6-6.140 - Delegation of Authority to Release Rights of Redemption in Certain Cases
The Tax Division has delegated to the United States Attorneys the authority to release rights of redemption in certain cases. See Tax Division Directive No. 83, located in 28 C.F.R. Pt. O, Subpt. Y, App., “Redelegation of Authority to Release Rights of Redemption in Certain Cases,” and discussed further in USAM 6-6.700.
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.
6-6.300 - Tax Division Approval Required for Compromises or Concessions
A United States Attorney may not enter into any agreement to compromise, or make any other administrative disposition of, any case within the responsibility of the Tax Division without the prior approval of the Tax Division, except as set forth in Tax Division Directive No. 139, located in 28 C.F.R. Pt. O, Subpt. Y, App., “Redelegation of Authority to Compromise and Close Civil Claims.”
[updated April 2018] [cited in USAM 6-2.000]
6-6.400 - Settlement Offers—Form of Offer
As a general rule, the Tax Division does not require a taxpayer to use a standard form to make a settlement offer. 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.
6-6.412 - Settlement Offers Based on Collectability (Inability to Pay)
In tax cases in which the taxpayer bases the offer on an alleged 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) (Collection Information Statement for Wage Earners and Self-Employed Individuals) or 433-B (http://www.irs.gov/pub/irs-pdf/f433a.pdf) (Collection Information Statement for Businesses). These forms are ordinarily submitted to the appropriate IRS Advisory Service for verification. The United States Attorney should request documents from the taxpayer to support the entries in the Form when needed.
6-6.420 - Offers Submitted to the United States Attorney
The United States Attorney’s authority to accept or reject settlement offers regarding judgments is set forth in USAM 6-7.300.
In any case within the responsibility of the Tax Division, 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.
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 Department of Justice.” The United States Attorney should hold any check or money order submitted with the offer, 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 DOJ Policy Statement 7000.01 “Deposit of Cash Collections Resulting from Department of Justice Civil Litigation and Enforcement” (Nov. 5, 2012), 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.
6-6.422 - Time for Processing Offers
When submitting a settlement offer 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 ($5 million of income in the case of corporations), 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 a settlement offer in 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 collectability, the IRS may also need 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.
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.
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.
6-6.450 - Settlement Negotiations
A United States Attorney who participates in settlement negotiations, either alone or in conjunction with the Tax Division trial attorney, 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. 139, located in 28 C.F.R. Pt. O, Subpt. Y, App., “Redelegation of Authority to Compromise and Close Civil Claims,” 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 a settlement offer in tax cases.
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 collectability, 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 collectability should provide that the taxpayer shall not 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.
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 collectability settlement, the United States Attorney should consider requiring the taxpayer to enter into an individual or corporate collateral agreement. See Tax Division Settlement Reference Manual, located at http://www.justice.gov/tax/readingroom/settlpdf/Settlement%20Reference%20Manual%202009.%2004-02-09.pdf. This agreement, known as a "future income collateral agreement," requires the taxpayer to pay 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.
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 collectability, the United States Attorney should require the taxpayer to waive those tax attributes for purposes of settlement.
6-6.540 - Security for Deferred or Installment Payments
Where an offer provides for the taxpayer to make deferred or installment payments, including payments pursuant to a collateral agreement, the taxpayer ordinarily should agree to entry of judgment for the full amount of the Government's claim. The settlement should also provide that the Government will file a satisfaction of judgment when the taxpayer has completed all obligations under the settlement (i.e., paid the amount due under the settlement, including any amount due under a collateral agreement). The settlement should also provide that the IRS will maintain any federal tax liens securing the liabilities being compromised until the taxpayer makes the final payment due under the settlement. Once the taxpayer has made the final payment, the IRS will release the liens.
6-6.550 - Tax Division Settlement Reference Manual
The Tax Division Settlement Reference Manual contains a detailed discussion on collectibility compromises which the United States Attorney can consult for further guidance. See http://www.justice.gov/tax/readingroom/settlpdf/Settlement%20Reference%20Manual%202009.%2004-02-09.pdf.
6-6.600 - Compromises of Refund Suits
After the Department accepts a settlement offer in a refund suit, the case will be terminated pursuant to a stipulation for dismissal. Generally, the stipulation should not include the terms of the compromise. It is contrary to the Department’s policy to stipulate to judgment in favor of the taxpayer when the Government has compromised a case. The United States Attorney should never do so without first obtaining written Tax Division authorization. The United States Attorney should send the Tax Division a copy of the stipulation of dismissal.
[updated April 2018] [cited in USAM 6-2.000]
6-6.612 - Concessions of Refund Suits
After the Department approves the concession of a refund suit, if the taxpayer agrees, the stipulation of dismissal should provide that each party will bear its own costs and expenses, including attorneys' fees. Otherwise, the parties should simply stipulate to entry of judgment against the United States.
6-6.613 - Issuance of Refund Checks
After the Department approves an offer or a concession that calls for a payment to the taxpayer, the Tax Division will authorize the IRS to schedule an overpayment in the appropriate amount, plus statutory interest. The Tax Division’s post-litigation function will coordinate the issuance of the refund check and/or notice of credit as well as the dismissal of the suit or the filing of a satisfaction of judgment. The IRS usually requires about 60 days to issue the refund after the amount of the refund has been computed.
In cases that the United States Attorney’s Office has handled, the Tax Division will normally send the refund check and/or notice of credit due under a compromise to the taxpayer or taxpayer’s counsel only after receiving a signed stipulation of dismissal or satisfaction of judgment executed by the taxpayer or taxpayer’s counsel. If a signed stipulation of dismissal or satisfaction of judgment has not been received, the Tax Division will forward the refund check and/or notice of credit to the United States Attorney’s Office, which should deliver these to the taxpayer or taxpayer’s counsel of record only after receiving the signed stipulation or satisfaction of judgment.
When appropriate, the Tax Division will also forward a separate check for costs, fees, and expenses payable from the judgment fund. 31 U.S.C. § 1304. If the United States Attorney’s Office or the taxpayer disagrees with the amount of a check, the Tax Division should be advised immediately. Acceptance of the refund check does not prejudice the taxpayer’s right to claim any additional amount. See 26 U.S.C. § 6611(b)(2).
When handling a settlement that involves only litigation costs or attorneys’ fees, the United States Attorney’s Office must request payment either from the Judgment Fund under 31 U.S.C. § 3104 or from the IRS, as appropriate. Compare 26 U.S.C. § 7430(d)(1) with 28 U.S.C. § 2412(d)(4).
6-6.620 - Compromises of Government Claims
The Tax Division will authorize the United States Attorney to sign a stipulation of dismissal of the Government's claim or of a case that the United States Attorney has handled under the following circumstances: 1) the Department has accepted a settlement offer in a case; 2) the taxpayer is required to pay the Government within a relatively short period of time (e.g., within 30 days of notification of acceptance); and 3) the United States Attorney has received the total amount due from the taxpayer. In general, the Tax Division does not permit the terms of a compromise to be set forth in the stipulation. Please send a copy of the dismissal order to the Tax Division.
When payment to the Government is due more than 90 days after notification of acceptance, generally the settlement will provide for entry of judgment in the Government's favor. For the policy on security for deferred or installment payments, see USAM 6-6.540. The United States Attorney should send a copy of the judgment to the Tax Division.
The taxpayer should make payments due under a compromise by cashier's or certified check, payable to the "United States Department of Justice." The taxpayer should submit all such payments (other than those due under a collateral agreement) to the United States Attorney. The United States Attorney should deposit all payments received by the direct deposit (lockbox) system, pursuant to DOJ Policy Statement 7000.01 “Deposit of Cash Collections Resulting from Department of Justice Civil Litigation and Enforcement” (Nov. 5, 2012), and also should notify the Tax Division and the Internal Revenue Service Center that payment has been received. In the event of any default, the United States Attorney should advise the Tax Division immediately. The taxpayer should send payments required under a collateral agreement directly to the Service Center.
6-6.622 - Concessions of Government Claims
After the Department approves a concession of a government claim in a case that the United States Attorney is handling, the stipulation of dismissal should provide—if the taxpayer agrees—that each party will bear its own costs and expenses, including attorneys’ fees. Otherwise, the stipulation should simply provide for dismissal of the action.
6-6.700 - Release of Rights of Redemption
The Tax Division has delegated to the United States Attorneys the authority to accept applications to release the United States' right of redemption under 28 U.S.C. § 2410 in matters involving: 1) real property on which is located only one single-family residence, and 2) all other real property having a fair market value that does not exceed $200,000. See Tax Division Directive No. 83, located in 28 C.F.R. Pt. O, Subpt. Y, App., “Redelegation of Authority to Release Rights of Redemption in Certain Cases.” The person seeking such a release must pay consideration that equals the value of the right of redemption or $50, whichever is greater. The limitations as to value or use of the property and the consideration that a person must pay do not apply in those instances where any federal agency requests the release. Form OBD-225 is the prescribed form of application for release of right of redemption in respect of federal tax liens. The instructions to Form OBD-225 set forth detailed information about the procedure that a person who is seeking this release must follow. In all instances not covered by Directive No. 83, the United States Attorney should handle all applications for release of rights of redemption in a manner similar to compromises.
[updated April 2018]