TC 480 to TC 788: Following an Offer in Compromise on Your Transcript

An offer in compromise is a request to settle a tax debt for less than the full amount. Whether the IRS accepts is a separate question. What this article covers is how to tell, from the transcript, where an offer stands and what it is doing to your account while it is pending.

The sequence

Document 6209's IDRS status 71, "OIC Pending," is generated when an unreversed TC 480 or TC 780 is present and suppresses all balance due notices except first notices. The freeze table describes an offer in compromise freeze set by TC 480, TC 780 or TC 782 and released by TC 481, TC 482, TC 483, TC 781, TC 782 or TC 788.

While the offer is pending: TC 480

Document 6209 says a TC 480 freezes tax modules from offsetting out (on individual accounts) and refunding, and "suspends Assessment and Collection Statute Expiration Dates." It also carries a jurisdiction code showing who has the offer: 1 for field collection, 2 for Examination, 3 for Appeals and 9 for campus collection.

The statute side comes from IRC 6331(k)(1). No levy may be made during the period an offer in compromise is pending, and if the offer is rejected, during the 30 days after rejection and while a timely appeal of the rejection is pending. The statute says an offer is pending beginning on the date the IRS accepts it for processing. IRC 6331(k)(3) applies the collection statute suspension rule of IRC 6331(i)(5) to those periods.

That is why the TC 480 date and the closing code date matter. The time between them, plus the 30-day rejection period and any appeal, is generally time added to the collection clock.

When the offer is not accepted

A rejected or returned offer posts as TC 481. Document 6209 says it "records date of rejection or return of offer" and "extends Assessment and Collection Statute Expiration Dates," pointing to IRM 5.8.10 for the details of how the extension is computed. A withdrawn or terminated offer posts as TC 482, with the same statute treatment. Both release the TC 480 freeze.

TC 483 is different. Document 6209 says it records that a TC 480 was posted in error, or that the offer was returned because it was not processable, and it "does not extend Assessment and Collection Statute Expiration Dates, reverts to normal date." If an offer was returned as not processable, the IRS's position is that the clock never stopped for it.

Document 6209 also notes that TC 481 and TC 482 do not extend the assessment statute for the trust fund recovery penalty.

When the offer is accepted: TC 780

Document 6209 says that to post, a TC 780 requires a return (TC 150) and an unreversed TC 480. On individual accounts, it "prevents computer generation of credit or debit interest," freezes credits from refunding in all modules of the account for 8 weeks, and freezes credits in the affected module from offsetting in or out.

Document 6209 also lists TC 971 action code 032, "Fully Accepted OIC," and 034, "Partial Offer Acceptance." A TC 971 with action code 32 on a module with a debit balance generates TC 604, "Assessed Debit Cleared," for the amount of the assessed balance. Designated payment code 09 identifies payments on an accepted offer.

Completion and default: TC 788 and TC 781

An accepted offer is not finished on acceptance. Document 6209 says TC 788 "records the closing of an accepted Offer-in-Compromise" and requires an unreversed TC 780 to post. When it posts, the account is released for offsetting and refunding as to the offer freeze, while the interest restriction set by the TC 780 is retained.

If the offer terms are not kept, the result is TC 781, "Defaulted Account Compromise," which Document 6209 says reverses all previously posted TC 780 transactions in the module and releases the interest and penalty restrictions. That is the transcript's way of saying the compromise no longer protects the account.

IRC 6325(f)(2) adds a lien consequence. If a certificate of release of a lien was issued under a collateral agreement entered into in connection with a compromise under IRC 7122, and that agreement is breached, the IRS may revoke the release and reinstate the lien, provided the collection period has not expired.

Payments during the offer

Offer payments carry their own labels. Document 6209 lists designated payment codes 33 for the offer application fee, 34 for the 20 percent lump sum or initial periodic payment, and 35 for subsequent payments made during the offer investigation. It also lists TC 971 action code 671, "OIC not accepted/waive IA fee/DO NOT alter fee." If you paid toward an offer and cannot find the payments, ask which year and which designation they posted under. See Payment Codes on Your Transcript.

A worked example

Notice what the designated payment codes do in this example. They are the only way to tell, from the payment lines alone, that the money was paid toward an offer rather than as an ordinary payment. If you are reconstructing an old offer from the transcript, those codes are the trail.

That is the clean version. The offer posted, payments came in under the offer designations, the offer was accepted, the balance was cleared and the offer closed. If the account had instead shown TC 481 after the TC 480, the offer was rejected, and the 30-day appeal window under IRC 6331(k)(1)(B) would have been the next thing to check.

Refunds and offsets around an offer

Expect refunds to behave differently while an offer is in process. Document 6209 says TC 480 freezes refunding, and on individual accounts offsets out. After acceptance, TC 780 freezes credits from refunding in all modules of the account for 8 weeks and freezes credits in the affected module from offsetting in or out. TC 788 releases the account for offsetting and refunding as to the offer freeze.

If you were counting on a refund during an offer, read these codes before you budget around it. The freeze is not a mistake. It is how the system protects the offer process while it runs.

When the offer is returned

A returned offer is the outcome people least expect and most need to understand. If the offer was returned because it was not processable, the TC 483 reverts the statute dates as if the offer never stopped the clock. If it was returned after being accepted for processing, the TC 481 treatment applies instead. The difference can matter by months on the collection statute, so it is worth knowing which code posted. The same clock analysis applies to bankruptcy and hearing codes, covered in TC 520.

Offers on joint accounts

Joint liabilities can split during an offer. Document 6209 lists TC 971 action code 101, "OIC," which it says will cause an MFT 31 or MFT 65 module to be created. If only one spouse submitted the offer, or the IRS needs to treat the spouses differently, the offer activity may appear on a mirrored module rather than the original joint year. Ask for the MFT 31 transcript if the joint year does not show what you expect.

Reading an offer history

• Find the TC 480 date. That is when the IRS accepted the offer for processing.
• Find the closing code: 481, 482, 483 or 780.
• For 481 or 482, note the date and allow for the 30-day period and any appeal.
• For 780, track the 788. Until it posts, the offer is not complete.
• Watch for 781. A default undoes the compromise.

The firm's main site has an overview of the offer in compromise program. The transcript is how you confirm what actually happened to yours.