A defaulted accepted offer in compromise generally cannot be reopened

Plain-English summary

Chief Counsel advice addressed whether the IRS could reopen a tax year after accepting an offer in compromise. The cited regulation allows reopening only for false information or documents, concealed ability to pay or assets, or a mutual material mistake. Because none of those circumstances was present, the advice concluded that a taxpayer's default on the accepted offer did not itself permit reopening, and the compromised liability remained settled. The advice also noted that the taxpayer agreed not to contest the liability under Form 656.

Ruling snapshot

• Question: Does a taxpayer's default on an accepted offer in compromise permit the IRS to reopen the settled liability?
• Outcome: Advice given
• Key authorities: IRC § 7122; Treas. Reg. § 301.7122-1(e)(5); Form 656

Full text (IRS public release)

ID: CCA_2012101814503319 Number: 201302032
Release Date: 1/11/2013
Office: -----------
UILC: 7122.00-00

From: ----------------------
Sent: Thursday, October 18, 2012 2:50:34 PM
To: ----------------------------------------------------------
Cc: -----------------
Subject: OIC question

This email confirms our conversation this morning. Treas. Reg. Section 301.7122-1(e)(5) provides that after the IRS accepts an OIC, a tax year can be reopened in only 3 limited situations. The regulation specifically states:

(5) Acceptance of an offer to compromise will conclusively settle the liability of the taxpayer specified in the offer. Compromise with one taxpayer does not extinguish the liability of, nor prevent the IRS from taking action to collect from, any person not named in the offer who is also liable for the tax to which the compromise relates. Neither the taxpayer nor the Government will, following acceptance of an offer to compromise, be permitted to reopen the case except in instances where--

(i) False information or documents are supplied in conjunction with the offer;

(ii) The ability to pay or the assets of the taxpayer are concealed; or

(iii) A mutual mistake of material fact sufficient to cause the offer agreement to be reformed or set aside is discovered. (Emphasis added)

We understand in this case that area counsel has determined that none of the three limited situations for reopening are present. Based on the facts provided, we concur with that conclusion. A taxpayer's defaulting an OIC is not listed as one of the criteria for reopening the case. Thus, even if the taxpayer defaults, the tax liability is settled and cannot be reopened. Also note that under the terms of an accepted offer, the taxpayer agrees that the taxpayer will "have no right to contest, in court or otherwise, the amount of the tax liability." Form 656, Offer in Compromise, Item 8(l). This response was coordinated with the OIC experts in the Office of Chief Counsel. If you need further assistance or have any questions, please contact me.