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Settlement Reference Manual - Table Of Contents


I. Introduction

II. Settlement Authority

A. The Attorney General, Deputy Attorney General,
and Associate Attorney General

B. The Assistant Attorney General

C. Joint Committee on Taxation

D. Trial Section

E. Appellate Section

F. Solicitor General

G. Office of Review

H. Deputy Assistant Attorneys General

I. United States Attorneys

J. Conditions and limitations on settlement authority

K. Determination of settlement jurisdiction amounts

L. Classification of cases as "Standard" or "Settlement Option" ("SOP")

M. Internal Revenue Service authority to settle bankruptcy cases -- the exception to the general rule

1. The general rule

2. Internal Revenue Service authority to settle bankruptcy cases

a. Before or after objection to a proof of claim has been filed

b. Before an objection to a proof of claim has been filed

c. After an objection to a proof of claim has been filed

III. The Settlement Process

A. Policy and practical considerations

1. Settlement versus litigation: In general

2. The need for preparation

3. The need for communication with the IRS

4. Concessions -- the Trial Attorney's role

B. Initial matters to be considered regardless of the likelihood of settlement

1. Collection cases and counterclaims

2. Refund cases

a. Offsets

b. Double allowances in other years or with respect to other taxpayers

c. Equitable recoupment

3. Employment tax cases

C. Negotiation

1. Basic principles

2. Formal settlement discussions

3. Settlement conferences with the court

4. Partial settlements

5. Factors favoring settlement generally, and factors generally rendering settlement difficult or unlikely

a. Factors favoring settlement include the following

b. Factors disfavoring settlement include the following

6. Attorney fees

7. Computations

8. Interest

9. Section 6402 of the Code

D. Offer and acknowledgement

E. Counteroffers

F. Concessions and administrative settlement

G. Soliciting the Internal Revenue Service recommendation

1. Compromises

a. Standard cases

b. SOP cases

c. Taxpayers and/or periods not in suit

d. The 45-day rule

2. Concessions

H. The offer list

1. The offer list and how it is used

2. Why the Tax Division cares about the pace of settlement

3. What an attorney can do to "stay off the list"

I. Settlement and concession memoranda

J. Settlement Checklist

K. Special considerations on submission of case to Office of Review

L. Responsibility of the Assistant United States Attorneys in Tax Division cases

M. Acceptance letters and other correspondence

N. Issuance of refunds

1. Preparation of Forms M-4457 authorizing issuance of refund

2. Verifying correctness of the refund check whether the refund is pursuant to settlement or judgment

IV. Offset, Double Allowances--Mitigation of Limitations, and Equitable Recoupment

A. Offset

B. Double allowances--mitigation of limitations (§§ 1311-1314)

1. Sections 1311-1314--an overview

2. Illustration

3. Pertinent considerations re applicability of the mitigation provisions

4. Where mitigation does not apply

C. Equitable recoupment

1. The general principle

2. Estate tax-income tax interrelationships

3. Employment taxes

V. Collectibility settlements

A. General considerations

B. Sources of financial information

1. Statement of financial condition and other information

2. Income tax returns

3. Applications for loans

4. Taxpayer-owned businesses

C. Terms of settlement

1. Cash payments

2. Collateral agreements

a. Contingent payments based on future income

b. Waiver of carryover of losses and credits

3. Taxpayer's residence

4. Alternatives to a collateral agreement

5. Waiver of deductions or credits

6. Security for amounts due under compromise

D. Receipt and monitoring of payments

E. Acceptance letters and closing cases after settlement

F. When full payment is made

G. Default on a settlement

VI. Alternative dispute resolution


Ex. A - General Information Concerning the Settlement of Tax Refund Suits

Ex. B - Sample Form of Memorandum of Delegation of Settlement Authority to Assistant Chief or Reviewer

Ex. C - Statement of Financial Condition and Privacy Statement:

Statement of Financial Condition and Other Information (DJ-TD 433 (1995))

Department of Justice Privacy Act of 1974 Compliance Information

Ex. D - Letter to District Counsel or Chief Counsel Invoking 45-day Rule

Ex. E - Internal Revenue Manual (35)(18)45

Ex. F - Form of memorandum

Ex. G - Sample Action Sheet:


Partial Concession

Ex. H - Tax Division Settlement Checklist (Form Tax-108)

Ex. I - Rejection Letters:

Letter to the Proponent)

Letter [District][Chief] Counsel

Ex. J - Acceptance Letters--Refund Due Under the Compromise:

Letter to the Proponent

Letter to [District] [Chief] Counsel

Where Amount of Overpayment is Known

Letter to [District] [Chief] Counsel

Where Amount of Overpayment Will be Computed by IRS

Ex. K - Acceptance Letter--Payment Due the United States Under the Compromise:

Letter to the Proponent Letter to [District][Chief] Counsel Letter to Special Procedures

Ex. L - Stipulations for Dismissal:

General Form

Refund Suits with Counterclaim or Third-Party Claim

Ex. M - Stipulations for Entry of Judgment:

Collection Suit

Refund Suit with Counterclaim or Third-Party Claim

Ex. N - Concession Letters in Refund Suit:

Letter to Counsel Where Amount of Overpayment Has Been Computed

First letter to Counsel When Amount of Overpayment Has Not Been Computed

Second letter to Counsel When Amount of Overpayment Had Not Been Previously Computed

Letter to [District][Chief] Counsel Where Amount of Overpayment is Known

Letter to [District][Chief] Counsel Where Amount of Overpayment Will be Computed by IRS

Ex. O - Tax Division Directive No. 85:
Re: Memoranda Authorizing Issuance of Refunds Pursuant to Compromise or Government Concession (Form M-4457)

Ex. P - Form M-4456, Refund pursuant to judgment

Ex. Q - "A Bird's Eye View of Some General Principles re Interest"

Ex. R - Mitigation of Effect of Limitations and other Provisions, §§ 1311-1314

Ex. S - Collateral Agreement re Basis

Ex. T - Collateral Agreement, Future Income:



Ex. U - Statement of Annual Income:



Ex. V - Letter to Special Procedures Where Payments and/or Collateral Agreement are to be Monitored by Special Procedures

Ex. W - Collateral Agreement--Waiver of Carryovers

Ex. X - Special Procedures Function - Address and Telephone List

Ex. Y - Tax Division Alternative Dispute Resolution Case Selection Criteria

Table of Cases and Authorities


Americold Corp. v. United States,

28 Fed. Cl. 747 (1993)

Bull v. United States, 295 U.S. 247 (1935)

Chertkof v. United States, 676 F.2d 984

(4th Cir. 1982)

Commissioner v. Sunnen, 333 U.S. 591 (1948)

Estate of Mueller v. Commissioner,

101 T.C. 551 (1993)

In re Stone, 986 F.2d 898 (5th Cir. 1993)

Lewis v. Reynolds, 284 U.S. 281 (1932)

O'Brien v. United States, 766 F.2d 1038

(7th Cir. 1985)

United States v. Bowcut, 287 F.2d 654

(9th Cir. 1961)

United States v. Herring, 240 F.2d 225

(4th Cir. 1957)

Wilmington Trust Co. v. United States,

610 F.2d 703 (Ct. Cl. 1979)


Internal Revenue Code of 1986 (26 U.S.C.):

§ 642

§ 1311

§ 1312

§ 1313

§ 1314

§ 1504

§ 3401

§ 3509

§ 6166A

§ 6402

§ 6405

§ 6411

§ 6511 § 6521

§ 6659

§ 6672

§ 7122

Judicial Improvements Act of 1990, Pub. L. No. 101-650

104 Stat. 5089 (28 U.S.C. § 473)

Revenue Act of 1978, Pub. L. No. 95-600,

§ 530, 92 Stat. 2885

28 U.S.C.:

§ 517

§ 519

§ 2410


28 C.F.R.:

§ 0.160

§ 0.161

§ 0.162

§ 0.163

§ 0.164

5 Administration, CCH Internal Revenue Manual, Ex. 8(15)00-1 at 26,260

Delegation Order 155 (Rev. 4, Aug. 15, 1996)

Executive Order 6166 (June 10, 1933)

Executive Order 12778 on Civil Justice Reform

Fed. R. Civ. P.:

R. 16

R. 26

Internal Revenue Manual (35)(18) 45

Rev. Rul. 71-56, 1971-1 C.B. 404

Rev. Rul. 81-256, 1981-2 C.B. 183

Rev. Rul. 81-287, 1981-2 C.B. 184

Tax Division Directives:

No. 82

No. 87-62

No. 105

Treas. Reg.:

§ 1.163-9T

§ 1.1311(a)-2

Updated April 6, 2015

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