SECTION 4. SCOPE OF MEDIATION

AND ARBITRATION FOR OIC CASES

1. In addition to the exclusions contained in Revenue Procedure 2002–44 and Revenue Procedure 2006–44, the following limitations on OIC cases apply:

(1) Neither mediation nor arbitration is available for:

i. Cases in which the taxpayer has the ability to pay in full based on the unadjusted financial information submitted by the taxpayer, except when economic hardship exists; ii. Cases in which the taxpayer declines to amend or increase the offer without stating any specific disagreement with the valuations, figures, or methodology used by Appeals in determining reasonable collection potential; iii. Cases in which the disputed issue is

explicitly addressed in established guidance (for example, the issues addressed in the instructions for Form 656, “ Offer in Compromise,” such as unsecured debt, college expenses, and non-qualifying charitable contributions);

iv. Cases in which an OIC is submitted as an alternative to collection in a Collection Due Process or equivalent hearing case; v. Cases in which the issue of liability was previously determined by Appeals; or vi. Cases in which Delegation Order 5–1

requires a level of approval higher than that of the Appeals Team Manager, such as Effective Tax Administration offers or those in which a determination is made by Appeals that acceptance is not in the best interest of the government (see Policy Statement P–5–100 and IRM 5.8.7.6(6)).

(2) Meditation is not available for:

i. Cases in which the taxpayer has already attempted to resolve the matter through Fast Track Mediation.

(3) Arbitration is not available for:

i. Corporate OIC cases in which the issue to be arbitrated is whether an individual is responsible for a Trust Fund Recovery Penalty or Personal Liability for Excise Tax assessment; or ii. Doubt as to liability cases.

2. Provided all facts are known by both parties, appropriate issues for mediation or arbitration in OIC cases generally include:

(1) The value of assets, including those held by a third party;

(2) The value of dissipated assets and what amount should be included in the overall determination of reasonable collection potential;

(3) A taxpayer’s proportionate interest in jointly held assets;

(4) Projections of future income based on calculations other than current income;

(5) The calculation of a taxpayer’s future ability to pay when living expenses are shared with a non-liable person; and

(6) Other factual determinations, such as whether a taxpayer’s contributions into a retirement savings account are discretionary or mandatory as a condition of employment.

3. Additionally, provided all facts are known by both parties, appropriate issues for mediation in OIC cases generally include whether the taxpayer meets the crite

2008–48 I.R.B. 1225 December 1, 2008

g. was involved in making federal tax deposits; and h. had the ability to hire and fire employees.

(2) Specific factual determinations concerning whether a responsible person willfully failed to collect or truthfully account for and pay over such tax, or willfully attempted in any manner to evade or defeat the payment of such tax. Common factors to be determined include:

a. when the taxpayer became aware of the failure to pay over the withheld tax; b. whether the taxpayer had knowledge of payments to other creditors, including employees, after becoming aware of the failure to pay over the withheld tax; c. whether there were unencumbered funds available to satisfy pre-existing employment tax liabilities; and d. whether the taxpayer failed to use unencumbered funds to satisfy pre-existing tax liabilities after becoming aware of such liabilities.

(3) A factual determination of the amount designated by the taxpayer as a payment to the trust fund portion of the unpaid tax; and

(4) A factual determination whether the taxpayer provided sufficient corporate payroll records to establish that a corporate tax deposit was in the amount required by Treas. Reg. § 31.6302–1(c) and therefore was considered a designated payment to be applied to both the trust fund and non-trust fund portions of the employment taxes associated with that specific payroll. See Note to IRM 5.7.4.3(7).