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IRS has a new unpublished tax policy of rejecting an OIC, based upon “doubt as to collectibility.”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.

posted on Monday, November 14, 2005 1:07 PM by AlvinBrown