6-6.100 The Authority of the Attorney General
to Compromise Cases
6-6.120 The Authority of the Attorney General
to Make Concessions
6-6.130 Redelegation of Authority to Compromise
and Close Civil Claims
6-6.140 Redelegation of Authority to Release
Rights of Redemption in Certain Cases
6-6.200 No Compromise of Civil Liability When
Criminal Case Pending
6-6.300 Tax Division Approval Required
6-6.400 Offers in Compromise -- Form of Offer
in Compromise -- General Rule
6-6.412 Form DJ-TD 433
6-6.420 Offers Submitted to the United States
Attorney
6-6.421 Payment of Amount Offered
6-6.422 Time for Processing Offers
6-6.430 Offers Submitted to the Division
6-6.440 Opportunity for Conference Regarding
Offers
6-6.450 Settlement Negotiations
6-6.500 Compromises of Government Claims,
Including Compromises Based on Inability to Pay -- Statutory Interest
6-6.520 Collateral Agreements
6-6.530 Waiver of Net Operating Losses, Etc.
6-6.540 Security for Deferred or Installment
Payments
6-6.550 Tax Division Judgment Collection
Manual
6-6.600 Closing Out Cases Compromised or
Conceded -- Compromises of Refund Suits
6-6.612 Closing Out Cases Compromised or
Conceded -- Concessions
6-6.613 Closing Out Cases Compromised or
Conceded -- Issuance of Refund Checks
6-6.620 Compromises of Government Claims
6-6.622 Concessions of Government Claims
6-6.700 Release of Right of Redemption
The Attorney General has plenary power to compromise or settle any civil
or criminal case arising under the internal revenue laws after reference to the
Department of Justice for prosecution or defense.
The Attorney General also has plenary authority to concede a case by
deciding to dismiss a suit or abandon defense of a suit. Such concessions are
sometimes referred to, particularly in the context of refund suits, as
administrative settlements.
The authority to compromise and close civil claims has been redelegated
pursuant to Tax Division Directive No. 105. Compromise authority has been
delegated to United States Attorneys solely with respect to judgments referred
by the Tax Division for collection, as discussed in USAM 6-8.300. Compromise of civil tax cases
otherwise requires the approval of the Tax Division.
The authority to release rights of redemption has been redelegated to the
United States Attorney pursuant to Tax Division Directive No. 83 and is discussed
in USAM 6-6.700.
The view of the Department, sustained by decisions of the courts, is that
collection of the related civil liabilities, including fraud penalties, is a
matter entirely separate and apart from the criminal aspects of a case. The
latter, therefore, should receive priority in disposition. No consideration will
be given to settlement of the civil liability until after sentence has been
imposed in the criminal case, except where the court chooses to defer sentence
in order to permit the defendant an opportunity to settle the civil liability.
Except as authorized in Tax Division Directive No. 105, United States
Attorneys should not enter into any agreement to compromise, or make any other
administrative disposition of, any case under the cognizance of the Tax Division
without the specific approval of the Division.
As a general rule, the Department does not require any printed forms to be
used in connection with offers in compromise of tax cases. Ordinarily it is
sufficient if the offer is in writing, is signed by the taxpayer or his/her
counsel of record, is definite and unambiguous, and sets forth clearly the
proposed basis of compromise. A letter from the United States Attorney setting
forth the terms of taxpayer's offer will not suffice. The offer should be
specific with respect to interest to be paid or refunded.
In tax cases in which the offer is based upon inability to pay, a sworn
statement of assets and liabilities on Form DJ-TD Form 433 (Statement of
Financial Condition and Other Information) should accompany the offer. These
forms can be obtained from the Tax Division's Office of Review.
Generally, upon receipt of an offer, the United States Attorney should
forward it directly to the Tax Division, together with any appropriate comments
and recommendations if it is a case in which he/she has taken an active part.
Normally, it is not necessary that amounts offered to the government
accompany the offer when it is submitted. However, the offer should include a
specific time when the amount due under the settlement will be paid. Generally,
this should be 30 days from the date of the letter accepting the offer.
As to the United States Attorney's authority to accept or reject offers in
compromise as to certain judgments and under certain conditions, see USAM 6-8.300.
Payment of amounts offered shall be by cashier's or certified check, or
money order, made payable to Internal Revenue Service. If a check or money order
is submitted with the offer, the United States Attorney should hold the check or
money order pending action on the offer. If the offer is accepted, the check or
money order should be deposited through the direct deposit (lockbox) system
pursuant to OBD Order 2110.19 (June 23, 1986) (see Tax Resource Manual at 39 et seq.), and the Tax
Division and the Internal Revenue Service Center advised. If the offer is
rejected, the check or money order should be returned to the offeror.
The Tax Division should be advised immediately in the event that any check
is dishonored, or any payment is not made when due.
United States Attorneys should make a suitable allowance of time to permit
action on offers in compromise. It is the Division's policy to obtain the
recommendation of the IRS District Counsel on offers in compromise of tax cases,
except in cases that District Counsel has classified as S.O.P. (Settlement Option
Procedure). Moreover, additional computations and/or investigation by the IRS
might be necessary before the Department will be in a position to act on the
offer. An investigation is almost always necessary when settlement is based on
collectibility. For all of these reasons, United States Attorneys should urge
the proponents and the courts to allow ample time for the orderly processing of
offers. The amount of time required for this purpose will vary, depending upon
the nature and complexity of each case, and the amount involved. For example,
settlements involving a refund or credit in excess of $1 million income, excess
profits, estate or gift tax, or certain excise t
axes must be submitted to the Joint Committee on Taxation. A minimum of 45 days
should be allowed even in a relatively uncomplicated matter, where no additional
investigation or submission is required.
Frequently, compromise proposals are submitted directly to the Division.
It is the Division's general practice to request the United States Attorney's
recommendation on the offer when the United States Attorney has had an active
part in the case, or if matters particularly within the United States Attorney's
knowledge are involved.
During compromise negotiations and the pendency of the offer, the Division
will rely upon the trial attorney to secure any additional time for the next step
in the court proceedings which may be necessary in order to protect the
government's interest and to permit final action by the Division on the proposal.
In the event the proponent and/or proponent's counsel desires to confer
with the Tax Division, they should be advised that opportunity for an informal
conference in Washington, D.C., will be afforded upon timely request. The United
States Attorney may be requested to participate in these conferences in
appropriate cases.
In those cases where the United States Attorney engages in settlement
negotiations, either alone or in conjunction with the trial attorney of the Tax
Division, the United States Attorney should impress upon taxpayer's counsel (and
also upon the court) that, except as set forth in Tax Division Directive No. 105,
offers in compromise in tax cases are subject to final action by the Attorney
General or certain officials of the Department in Washington, D.C., to whom the
Attorney General has specifically delegated such authority, and that the United
States Attorney and the Tax Division trial attorney can do no more than make a
recommendation.
The amount in controversy includes statutory interest under 26 U.S.C. §
6601. Accordingly, interest should not be conceded as part of a settlement
unless such concession is justified in light of the taxpayer's inability to pay
or litigating hazards (prejudgment) with respect to establishing the government's
claim or the amount thereof. In any settlement based on collectibility where the
government is receiving less than the total amount of its claims, plus interest,
the offer should provide specifically that no part of the payment is deductible
for federal income tax purposes.
Generally, when there is a possibility that an individual or corporate
taxpayer may come into some money or property (e.g., through earnings,
inheritance or gifts), the settlement should include the execution of an
individual or corporate collateral agreement (see Tax Resource Manual at 45 et seq.) providing
for the payment of increasing percentages of annual income (as defined in the
agreement) over a period of years. The duration of the collateral agreement and
the percentages of income should be fixed on the basis of the facts and
circumstances of the case. Under the terms of a future income collateral
agreement, a taxpayer is obligated to pay, for each year the agreement is in
force, graduated percentages, usually ranging between 20 to 50 percent, of
"annual income" in excess of a threshold or floor. Guidance concerning
acceptable terms can be obtained from the Tax Division's Civil Trial Sections and
Office of Review. A discuss
ion of collateral agreements relating to future income of individuals and of
corporations can be found in the Judgment Collection Manual.
If the taxpayer has any valuable tax attributes such as net operating
losses, bad debt deductions, etc., and is proposing settlement based on
collectibility, such tax attributes should be waived for purposes of settlement.
Where the offer provides for deferred or installment payments, including
payments pursuant to a collateral agreement, the taxpayer should agree to entry
of judgment for the full amount of the government's claim. The settlement should
further provide that the judgment will be marked satisfied when the taxpayer has
completed his obligations under the settlement, (i.e., paying the amount due
under the settlement including any amount due under a collateral agreement).
The Tax Division Judgment Collection Manual contains a discussion
on collectibility compromises which discusses these points in greater detail.
After an offer in compromise of a refund suit has been accepted by the
Department, the case will be terminated by dismissal of the suit pursuant to a
stipulation for dismissal.
In general, it is the policy of the Tax Division not to permit the terms
of a compromise to be set forth in the stipulation. The United States Attorney
should send the Tax Division a copy of the dismissal order so that the file may
be closed. It is contrary to the policy of the Department to stipulate for
judgment in favor of the taxpayer when a case has been compromised, and the
United States Attorney should never do so without prior authority from the Tax
Division.
After a concession of a refund suit has been approved by the Department,
if taxpayer agrees, the case will be terminated by a stipulation of dismissal,
each party to bear its own costs and expenses, including attorneys' fees.
Otherwise, the parties will simply stipulate to entry of judgment against the
United States.
After an offer has been accepted, or a concession has been approved, the
Tax Division will authorize the IRS to issue a refund in the appropriate amount,
plus statutory interest. At that time, the case will be transferred within the
Tax Division to the Post-Litigation Unit for supervision of the issuance of the
refund check and/or notice of credit and the dismissal of the suit or filing
satisfaction of judgment. See USAM 6-7.000.
The IRS usually requires about 60 days to effect the refund after the amount of
the refund has been computed.
In cases handled by the USAOs, the refund check and/or notice of credit due
under a compromise will be sent by the Tax Division to the United States Attorney
for delivery to taxpayer's counsel only after the United States Attorney has
received an executed stipulation of dismissal. The refund check and/or notice
of credit due under a concession will be sent by the Tax Division to the United
States Attorney for delivery to taxpayer's counsel, together with a stipulation
of dismissal or satisfaction of judgment.
After the Department's acceptance of an offer in compromise of a case
handled by the United States Attorney, where payment to the government is
required within a relatively short period of time (e.g., 30 days of notification
of acceptance), the United States Attorney will be authorized to execute a
stipulation for dismissal of the case or the government's claim upon receipt of
the total amount due.
In general, it is the policy of the Tax Division not to permit the terms
of a compromise to be set forth in the stipulation. The United States Attorney
should send the Tax Division a copy of the dismissal order so that the file may
be closed.
When payment to the government is due beyond 90 days of notification of
acceptance, generally the settlement will provide for entry of judgment in the
government's favor. See USAM 6-6.540, for policy
on security for deferred or installment payments. The United States Attorney
should send the Tax Division a copy of the judgment.
Payments due under a compromise should be made by cashier's or certified
check payable to the Internal Revenue Service. All such payments (other than
those due under a collateral agreement) should be made to the United States
Attorney and upon the United States Attorney's receipt should be deposited
through the direct deposit (lockbox) system pursuant to OBD Order 2110.19 (June
23. 1986 ) with advice of receipt of payment made to the Tax Division and the
Internal Revenue Service Center. The Tax Division should be advised immediately
in the event of any default. Payments required under a collateral agreement
should be sent by the taxpayer directly to the Service Center.
After approval by the Tax Division of a concession of a government claim
in a case being handled by the United States Attorney, if the taxpayer agrees,
the stipulation of dismissal will provide that each party will bear its own costs
and expenses, including attorneys' fees. Otherwise, the stipulation will simply
provide for dismissal of the action.
Occasionally the Department is requested to release rights of redemption
arising in favor of the United States under 28 U.S.C. § 2410. As set forth
in Tax Division Directive No. 83, the United States Attorney may accept an
application to release a right of redemption involving (1) real property on which
is located only one single-family residence, and (2) all other real property
having a fair market value not exceeding $200,000. The consideration paid for
the release must be equal to the value of the right of redemption or $50,
whichever is greater. The limitations as to value or use of the property and
consideration to be paid do not apply in those instances where the release is
requested by the Department of Veterans Affairs or any other federal agency.
Form OBD-225 is the prescribed form of application for release of right of
redemption in respect of federal tax liens, copies of which can be requisitioned
in the usual manner. Detailed information as to the procedure to
be followed is set forth on the back of the application form.
In all instances not covered by the redelegation order, applications for
release of rights of redemption should be handled in a manner similar to
compromises.
| February 1998
| USAM Chapter 6-6
|