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Offer In Compromise
Offer in Compromise
Abuse of discretion in rejecting an otherwise qualified offer in
compromise (OIC) because an IRS Appeals Settlement Office
disapproves of a taxpayer’s prior compliance history.
IRS has a new unpublished tax policy of rejecting an OIC, based
upon “doubt as to collectibility.”
In these cases, the Offer by a taxpayer to the IRS meets all
published guidelines and regulations. The Offer to the IRS would
be acceptable to the IRS under section 7122 of the Code, the
regulations under that section, the IRS Internal Revenue Manual,
and the Instructions to Form 656, the application for an OIC.
The Offer represents “reasonable collection potential[1].”
In the present case, all unfilled tax returns have been filed,
the taxpayer is not in bankruptcy, and the taxpayer has a
qualifying Offer that would be accepted other than the fact that
the Settlement Office disapproves of the pre-compliance history
of the taxpayer. Example: Prior to being in compliance, the
taxpayer was out of compliance for five years.
This unsupported discretionary action of the IRS is contrary to
the intent of the Congress. Congress gave very broad discretion
to the IRS to settle taxes in section 7122 of the Code. Congress
gave the IRS the discretion to write the administrative rules.
The IRS has written those administrative regulations and has
expanded that authority in the Internal Revenue Manual. There is
nothing in any of the IRS regulations or administrative
guidelines to indicate that the IRS will not follow those
regulations and guidelines if an IRS Appeals Settlement Officer
decides they just do not like a taxpayer’s prior non-compliance
history.
Congress spoke very specifically to the IRS about OICs in the
Internal Revenue Service Restructuring and Reform Act of 1998.
The Conference Report[2] identifies and accepts the Senate
Amendment[3] which states:
The Senate amendment provides that the IRS will adopt a liberal
acceptance policy for offer-in-compromise to provide an
incentive for taxpayers to continue to file tax returns and
continue to pay their taxes.
The Conference Report goes on to state:[4]
The conferees believe that the ability to compromise tax
liability and to make payments of tax liability by installment
enhances taxpayer compliance. In addition, the Committee
believes that the IRS should be flexible in finding ways to work
with taxpayers who are sincerely trying to meet their
obligations and remain in the tax system. Accordingly, the
Committee believes that the IRS should make it easier for
taxpayers to enter into offer-in-compromise agreements, and
should do more to educate the taxpaying public about the
availability of such agreements.
The action of the Appeals Settlement Officer is abusive because
it is contrary to the intent of the Congress in OIC cases
expressly stated in the 1998 Conference Report.
Congress mandated a liberal acceptance policy with flexibility
and accommodation to taxpayers. The purpose of the Congress is
to encourage compliance and give taxpayers a “fresh start,”
The action of the IRS in this matter is a clear abuse of
discretion by the capricious rejection of the clear tax policy
articulated by the Congress[5].
Misconduct complaints should be filed against the IRS in case
where the IRS rejects tax policy required by the Congress.
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[1] Reasonable Collection Potential is the standard used by the
IRS for qualifying Offers in Compromise based upon doubt as to
collectibility.
[2] H.R. 2676, 105th Cong. 2s Sess,(H. Rept. 105-599)
[3] Page 288 of the Conference Report
[4] Page 289 of the Conference Report
[5] Submitted by Alvin S. Brown, Esq, Alvin Brown & Associates.
9667B Main Street, Fairfax, VA 22031 703 425-1400
posted on Monday, November 14, 2005 1:07 PM by Alvin Brown
# re: Offer in Compromise @ Monday, November 21, 2005 11:06 AM
I am most troubled that the IRS ignores the expressed intent of
the Congress demanding that the IRS follow a "liberal acceptance
policy" in OIC cases. As a practicing tax attorney, the IRS does
the exact opposite: the IRS generally takes positions that are
the most restrictive against taxpayers. I have never seen any
IRS person using a liberal acceptance policy in any single case.
This abuse will get the attention of the Congress if get get
enough testimony against the IRS in the "submit abuse" data in
the IRS Forum.
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