Q1. What is the Tax Increase
Prevention and Reconciliation Act of 2005 (TIPRA)?
The Tax Increase Prevention and Reconciliation Act of 2005, was
signed into law by the President on May 17, 2006. Section 509
of this law creates significant changes to the IRS Offer in
Compromise (OIC) program by amending IRC 7122.
Q2. When will the TIPRA law be in
The law will become effective for all offers that are
submitted to the IRS on, or after July 16, 2006.
Q3. How will TIPRA, Section 509
impact the OIC program?
TIPRA, Section 509, amends IRC 7122 by creating a new
subsection (c) entitled, “Rules for Submission of
Offers-in-Compromise.” The new subsection (c) requires that
offers submitted on, or after July 16, 2006, (and not subject to
the waiver with respect to low-income taxpayers or offers filed
under doubt as to liability only) must be accompanied by partial
payments of the proposed offer amount. The form of these
partial payments depends on the taxpayer’s proposed offer and
its terms. The law also establishes a time period after which
an offer would be deemed accepted by the IRS.
Q4. What are the proposed offer and
terms that would be in effect as of July 16, 2006?
Taxpayers filing offers (excluding doubt as to liability offers)
would have to specify whether they are filing a lump sum or
periodic payment offer.
The new IRC
7122(c)(1)(A) subsection requires that a taxpayer filing a “lump
sum” offer must pay 20 percent of the offer amount with the
application. A “lump-sum” offer means any offer of payments made
in five or less installments.
The new IRC
7122(c)(1)(B) subsection requires that a taxpayer filing a
“periodic payment offer” pay the first proposed installment
payment with the application and pay additional installments
while the IRS is evaluating the offer. A “periodic payment
offer” means any offer of payments made in six or more
Q5. What time period has been
established by TIPRA in relation to declaring offers accepted?
IRC 7122(f) as amended by TIPRA will cause
the IRS to deem an offer “accepted” which is not withdrawn,
returned, or rejected within 24 months after the IRS receipt
date. If a liability included in the offer amount is disputed
in any judicial proceeding, that time period is omitted from
calculating the 24 month timeframe.
Q6. Will all taxpayers be required
to pay the payments imposed by TIPRA in order for the IRS to
evaluate their offer in compromise?
No. Taxpayers qualifying as low-income or filing a doubt as
to liability offer only will not be required to pay the $150
application fee, nor make the partial payments for either lump
sum or periodic payment offers.
Q7. What is a low-income taxpayer?
For OIC purposes, a low income taxpayer is
an individual whose income falls at or below poverty levels
based on guidelines established by the U.S. Department of Health
and Human Services (HHS) under authority of section 673(2)
Omnibus Reconciliation Act of 1981, or such other measure that
may be adopted by the Service in the future.
Q8. What will a taxpayer need to
submit in order to claim to qualify as a low-income taxpayer who
is not be required to pay the payments imposed by TIPRA?
As is the case when claiming exemption from payment of the
$150 application fee, the taxpayer will need to complete the OIC
Application Fee and Payment Worksheet, and Form 656-A, Income
Certification for Offer in Compromise Application Fee and
Payment. Both the worksheet and the Form 656-A must be
submitted with the Form 656 application.
Q9. Will a taxpayer need to submit
two Form 656-A to claim exemption from the application fee and
the TIPRA payments?
No, only one Form 656-A will be required and it will apply
for both the application fee and the required TIPRA payments.
Q10. What will happen if the
taxpayer submits a Form 656-A claiming to qualify as low-income
and the IRS later determines that the taxpayer did not qualify?
If the OIC investigator concludes that the
taxpayer’s income for the family size exceeds the levels for
which a Form 656-A certification was allowed (e.g. the taxpayer
should have paid the application fee and the partial offer
payments), the offer investigation will immediately cease and
the offer will be returned to the taxpayer. The taxpayer will
not have appeal rights to this decision.
Q11. What happens if the taxpayer,
who is not filing a doubt as to liability offer only, does not
submit the payment imposed by TIPRA and does not qualify as
Failure to pay the 20 percent payment on a lump sum offer, or
the first installment payment on a periodic payment offer will
cause the IRS to return the offer back to the taxpayer as
unprocessable. See FAQ #14 if the taxpayer submits only a
portion of the 20percent payment on a lump sum offer.
Q12. Has the impact of TIPRA caused
the IRS to change its processability criteria for offer
Yes. As a result of TIPRA, effective on July 16, 2006, and
thereafter, offers will be deemed unprocessable and returned
back to the taxpayer along with the $150 application fee in the
• Taxpayer is in
• Taxpayer does not submit the $150 application fee, or a signed
Form 656-A, Income Certification for Offer in Compromise
Application Fee and Payment
• Taxpayer does not submit the 20percent payment, or portion
thereof, with the lump sum offer, or a signed Form 656-A
• Taxpayer does not submit the initial payment with the periodic
payment offer, or a signed Form 656-A
Q13. What happens if a taxpayer only
submits the $150 application fee with the offer?
If a taxpayer submits only the application fee and does not
submit either the 20percent payment, or portion thereof, or the
first installment payment, the offer will be deemed
unprocessable and the $150 application fee will be returned to
Q14. What happens if a taxpayer
submits a portion of the 20 percent payment on a lump sum offer
but not the entire 20 percent payment?
A lump sum offer that is received with less than the required
20 percent payment will be deemed processable but the taxpayer
will be asked to pay the remaining balance in order to avoid
having the offer returned. Failure to submit the remaining
balance will cause the IRS to return the offer and retain the
$150 application fee.
Q15. Is compliance no longer a
processability criterion for OIC submissions?
Correct. Compliance will no longer be a processability
criterion for OIC initial submissions. If compliance is the
only issue, the offer will be deemed processable. However, IRS
will contact the taxpayer by either telephone or correspondence
requesting the delinquent return(s), and/or the required
estimated tax payment(s). A reasonable amount of time will be
provided to the taxpayer to comply. Failure to comply will
cause the IRS to return the offer back to the taxpayer and
retain the application fee. The taxpayer will not have appeal
rights to this decision.
Q16. Does the taxpayer need to
submit two separate remittance documents when filing an offer
(e.g. one for the application fee and another for the required
The taxpayer should remit two checks, one
for the application fee and the other one for the required TIPRA
payment. If only one check is received, the IRS will apply the
application fee first and then the remainder as the payment
Q17. Are the payments imposed by
TIPRA refundable to the taxpayer if the IRS later returns the
offer back to the taxpayer?
Based on IRC 7122(c), the 20 percent payment on a lump sum offer
and the installment payments on a periodic payment offer are
considered “payments on tax” and are not refundable.
Q18. Does TIPRA allow the taxpayer
to designate how these payments should be applied?
Yes. Taxpayers may designate the
application of these required payments. The designation must be
made in writing when the offer is submitted or when the required
payment is made, clearly specifying how the partial payments are
to be applied to a particular tax period(s) and to specific
liabilities (e.g. income taxes, employment taxes, trust fund
portions of employment, excise tax, etc.)
Q19. What happens if the taxpayer
does not submit a written request stating how the payments
should be applied?
In the absence of any written request by the taxpayer when
the offer is submitted or when the required payment is made, the
IRS will apply the partial payment(s) in the best interest of
Q20. Can a taxpayer designate how the
$150 application fee is applied?
No. A taxpayer may not designate how the application fee is
applied. The OIC application fee reduces the assessed tax or
other amounts due.
Q21. What happens if a taxpayer who
has paid the initial payment on a periodic payment offer fails
to submit subsequent payments while the offer is under
The IRS will contact the taxpayer and provide one opportunity
to pay the missing amount. The offer will be declared withdrawn
and returned back to the taxpayer if the taxpayer fails to
submit the required amount. All payment(s) previously made
will be applied to the taxpayer’s account. The IRS will retain
the application fee and the taxpayer will not have appeal rights
to this decision.
Q22. Is the IRS bound by the offer
amount and terms submitted by the taxpayer in determining an
No. The IRS is not bound by either the offer amount or the
terms. The OIC investigator may negotiate a different offer
amount and terms, when appropriate. The investigator may
determine that the proposed offer amount is too low or the
payment terms too protracted to recommend acceptance. In this
situation, the OIC investigator may advise the taxpayer as to
what larger amount or different terms would likely be
recommended for acceptance.
Q23. What will happen to payments
the taxpayer makes during the offer investigation if the IRS
later rejects the offer?
The IRS will credit the taxpayer’s account(s) with any
payment(s) submitted with the original offer.
Q24. Will a taxpayer be able to
designate any partial payments in excess of the 20 percent paid
with a lump sum offer, or in excess of the proposed installments
paid under a periodic payment offer?
No. Any partial payments that are made during the offer
investigation that are in excess of the 20 percent lump sum
offer amount, or in excess of the proposed installments paid
under a periodic payment offer will be considered a deposit and
may not be designated.