New Offer in Compromise case under section 7122. Section 7122(a) authorizes the Secretary to compromise any civil or criminal case arising under the internal revenue laws. Section 7122(c) provides that the Secretary shall prescribe guidelines for evaluation of whether an offer-in-compromise should be accepted. Regulations under section 7122 set forth three grounds for compromise of a taxpayer's liability. One of those grounds is doubt as to collectibility. A compromise based on doubt as to collectibility may be accepted "where the taxpayer's assets and income are less than the full amount of the liability." Sec. 301.7122-1(b)(2), Proced. & Admin. Regs.
Leroy Wright v. Commissioner.
Dkt. No. 1429-06L , TC Memo. 2008-259, November 18, 2008.
An IRS settlement officer's determination to reject a taxpayer's offer-in-compromise and proceed with collection of his unpaid tax liabilities was not an abuse of discretion. The taxpayer's offer did not satisfy the requirements for a proper offer-in-compromise based on doubt as to collectability because it did not reflect his reasonable collection potential. Although the settlement officer's determination of the taxpayer's future income potential may have been flawed, it was clear that the amount offered was less than the taxpayer's net realizable equity in his assets; therefore, the rejection of the offer-in-compromise was justified. Further, the taxpayer's failure to submit a revised offer-in-compromise or propose another reasonable collection alternative supported the settlement officer's determination that the only viable alternative was to proceed with the proposed levy.
Background
Petitioner failed to file timely Federal income tax returns for 1993, 1994, and 1995. After respondent prepared substitutes for returns under section 6020(b) for the above years, petitioner filed Federal income tax returns for those years but failed to pay all of the tax reported on the returns. Respondent assessed the income tax reported on the returns as well as additions to tax and interest.
Petitioner filed Federal income tax returns for 1996, 1999, and 2000 but failed to pay all of the tax reported on the returns. Respondent assessed the income tax reported on the returns as well as additions to tax and interest.
On June 22, 2005, respondent issued petitioner a Final Notice of Intent to Levy and Notice of Your Right to a Hearing for 1993, 1994, 1995, 1996, 1999, and 2000. Petitioner timely submitted a Form 12153, Request for a Collection Due Process Hearing. In a note attached to his Form 12153, petitioner stated that he disagreed with the proposed levy because it would cause him great hardship and he could not pay.
On September 13, 2005, Settlement Officer Debra Alcorte (Ms. Alcorte) mailed petitioner a letter scheduling a telephone hearing for October 13, 2005. Ms. Alcorte requested that petitioner provide the following items: (1) A completed Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, or Form 433-B, Collection Information Statement for Businesses; (2) copies of bank statements for the past 3 months; (3) copies of wage statements for the last three pay periods; (4) copies of a mortgage statement or rental agreement; and (5) copies of life and health insurance policies, if applicable. On October 20, 2005, petitioner submitted Form 433-A on which he indicated that he was a single, self-employed individual operating "Wright Way Const" and that he had income and living expenses as follows:
Income Living expenses
Gross Actual
Source monthly Expense items monthly
Food, clothing,
Net income misc. $300
Housing and
from business $ 1,405 utilities 600
Total 1,405 Transportation 200
Health care 500
Taxes (income and
FICA) 155
Court ordered
payments 200
Total 1,955
Petitioner attached to the Form 433-A copies of 10 checks drawn on the account of TLJ Wrightway, L.L.C., 2 payable to petitioner:
Date Amount
7/1/05 1$1,500
7/15/05 1,080
7/29/05 1,387
8/5/05 1,958
8/12/05 850
8/19/05 1,033
8/23/05 500
8/26/05 500
9/2/05 958
9/9/05 400
Total 10,166
1Amounts are rounded to
the nearest dollar.
Petitioner also provided copies of statements of accounts held at Tinker Federal Credit Union (TFCU) for July and September 2005 3 showing deposits totaling $800 and $2,326.52, 4 respectively, and statements for a checking account held at Republic Bank & Trust for August and September 2005 showing no activity. Petitioner indicated on Form 433-A that he owned two automobiles valued at $1,000 5 and $500, real estate valued at $40,000 subject to a loan balance of $27,000, furniture/personal effects valued at $750, horses valued at $1,250, and tools used in business valued at $1,500 subject to a loan balance of $1,000.
On October 20, 2005, Ms. Alcorte held a telephone hearing during which petitioner's representative, Frederick J. O'Laughlin (Mr. O'Laughlin), indicated that petitioner was seeking an offer-in-compromise of $2,000. 6 Ms. Alcorte advised Mr. O'Laughlin that she had not seen the Form 433-A before the hearing and would need to conduct research to evaluate the offer. After reviewing petitioner's Form 433-A, Ms. Alcorte made four adjustments to the income and expenses reported on the form. She increased petitioner's net monthly income from business to $3,700. Ms. Alcorte calculated the net monthly income from business by totaling the amounts on copies of 10 checks attached to the Form 433-A and dividing the total by 2.75. 7 She also increased petitioner's monthly housing and utilities expenses to $649, the maximum allowed under the national standards, and she increased petitioner's transportation expense to $300 in accordance with the applicable standards. Finally, Ms. Alcorte decreased petitioner's health care expense to $200. 8 Ms. Alcorte subtracted the adjusted monthly living expenses from the adjusted monthly gross income and determined that petitioner had excess monthly income of $1,596. 9 On October 28, 2005, Ms. Alcorte also conducted an online search to determine petitioner's assets and found 13 addresses listed for petitioner and several vehicles registered in the State of Mississippi under the name "Lee Henry Wright".
On December 14, 2005, respondent sent petitioner a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 for 1993, 1994, 1995, 1996, 1999, and 2000 sustaining the proposed levy. On January 19, 2006, petitioner petitioned this Court challenging respondent's determination.
On May 16, 2006, the parties filed a joint motion to remand. We granted the joint motion and remanded this case to respondent's Appeals Office.
On June 8, 2006, Ms. Alcorte sent Mr. O'Laughlin a letter scheduling a telephone hearing for June 28, 2006. Ms. Alcorte asked petitioner for information regarding his horses and proof that petitioner did not own certain real and personal property. In response Mr. O'Laughlin explained that the only real estate petitioner owned was the property reported on the Form 433-A. Mr. O'Laughlin also stated that the total value of the horses was $1,250, and in March 2006 petitioner had sold a mule "for $70 with a value of $50." Mr. O'Laughlin also provided an affidavit in which petitioner swore that he at no time owned any of the vehicles registered in Mississippi to "Lee Henry Wright".
On June 28, 2006, Ms. Alcorte held a telephone hearing with Mr. O'Laughlin (the second hearing). During the second hearing Mr. O'Laughlin asked Ms. Alcorte to consider an offer-in-compromise of $2,000. Ms. Alcorte informed Mr. O'Laughlin that the offer was not feasible because on the basis of her analysis of petitioner's assets and future income the minimum offer was $82,908. Ms. Alcorte suggested that petitioner enter into a partial payment installment agreement.
On or about June 28, 2006, 10 Mr. O'Laughlin faxed Ms. Alcorte Form 656, Offer in Compromise, in which petitioner sought to compromise his tax liability for $2,000 based on doubt as to collectibility. 11 On the Form 656, petitioner asserted that he could not afford to pay the full amount of his tax liabilities. On June 28, 2006, Ms. Alcorte faxed Mr. O'Laughlin a letter explaining that petitioner's offer-in-compromise was unacceptable as the minimum offer amount was $82,908 and suggesting a partial payment installment agreement of $1,596 per month. Ms. Alcorte also explained that she determined petitioner's excess monthly income of $1,596 on the basis of her adjustments to petitioner's Form 433-A, that petitioner's income potential for the following 48 months was $76,608, 12 and that petitioner's net realizable equity in assets was $6,300. Ms. Alcorte determined petitioner's net realizable equity in his assets by adding the amounts attributable to real estate ($5,000) and animals ($1,300) he owned. Ms. Alcorte determined petitioner's equity in his real estate by taking 80 percent of the value of the real estate listed on his Form 433-A and subtracting the loan balance reported on the Form 433-A. She determined the equity in the animals by adding the value of two horses ($750 and $500) and the value of a mule ($50). 13
On July 5 and 6, 2006, Ms. Alcorte held telephone conferences with Mr. O'Laughlin during which they discussed the offer-in-compromise and the partial payment installment agreement. Mr. O'Laughlin informed her that petitioner did not wish to enter into a partial payment installment agreement because petitioner "would get a better deal by filing for bankruptcy."
On July 17, 2006, respondent issued petitioner a Supplemental Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 (supplemental notice). In the supplemental notice, the Appeals Office determined that respondent met all administrative and procedural requirements, that the offer-in-compromise was too low, that no viable alternatives to the levy were established, and that the levy was not considered an overly intrusive action.
The parties have stipulated Ms. Alcorte's sworn declaration dated August 21, 2006, with attachments (declaration). In the declaration Ms. Alcorte stated that she made her determination to proceed with the levy after reviewing (1) the correspondence between respondent and petitioner or Mr. O'Laughlin, (2) documents petitioner sent to Ms. Alcorte, (3) results of the research she conducted on October 28, 2005, such as the State of Mississippi Motor Vehicles Report, property assessment record, and a printout of online search results, and (4) TXMODA 14 transcripts of petitioner's account for 1993, 1994, 1995, 1996, 1999, and 2000 (transcripts). From the transcripts, Ms. Alcorte determined that respondent followed administrative procedures before the issuance of the supplemental notice. Ms. Alcorte attached to the declaration all documents she reviewed.
Discussion
Section 6330(a) provides that no levy may be made on any property or right to property of any person unless the Secretary has notified such person in writing of the right to a hearing before the levy is made. If the person requests a hearing, a hearing shall be held before an impartial officer or employee of the Internal Revenue Service Office of Appeals. Sec. 6330(b)(1), (3). At the hearing, a taxpayer may raise any relevant issue, including appropriate spousal defenses, challenges to the appropriateness of the collection action, and collection alternatives. Sec. 6330(c)(2)(A). A taxpayer may contest the existence or amount of the underlying tax liability at the hearing if the taxpayer did not receive a notice of deficiency for the tax liability or did not otherwise have an opportunity to dispute the tax liability. Sec. 6330(c)(2)(B); see also Sego v. Commissioner, 114 T.C. 604, 609 (2000).
Following a hearing, the Appeals Office must make a determination whether the proposed levy action may proceed. The Appeals Office is required to take into consideration: (1) Verification presented by the Secretary that the requirements of applicable law and administrative procedure have been met, (2) relevant issues raised by the taxpayer, and (3) whether the proposed levy action appropriately balances the need for efficient collection of taxes with a taxpayer's concerns regarding the intrusiveness of the proposed levy action. Sec. 6330(c)(3).
Section 6330(d)(1) grants this Court jurisdiction to review the determination made by the Appeals Office in connection with the section 6330 hearing. Where the underlying tax liability is not in dispute, the Court will review the determination of the Appeals Office for abuse of discretion. Lunsford v. Commissioner, 117 T.C. 183, 185 (2001); Sego v. Commissioner, supra at 610; Goza v. Commissioner, 114 T.C. 176, 182 (2000). An abuse of discretion occurs if the Appeals Office exercises its discretion "arbitrarily, capriciously, or without sound basis in fact or law." Woodral v. Commissioner, 112 T.C. 19, 23 (1999).
Petitioner does not dispute the underlying tax liability for any of the years in question. 15 Accordingly, we shall review respondent's determination for abuse of discretion.
Petitioner argues that respondent erred in the determination to sustain the levy because Ms. Alcorte incorrectly calculated petitioner's gross monthly income. Petitioner asks that we again remand his case to respondent's Appeals Office to redetermine petitioner's excess monthly income for an offer-in-compromise or installment agreement.
Section 7122(a) authorizes the Secretary to compromise any civil or criminal case arising under the internal revenue laws. Section 7122(c) provides that the Secretary shall prescribe guidelines for evaluation of whether an offer-in-compromise should be accepted. Regulations under section 7122 set forth three grounds for compromise of a taxpayer's liability. One of those grounds is doubt as to collectibility. A compromise based on doubt as to collectibility may be accepted "where the taxpayer's assets and income are less than the full amount of the liability." Sec. 301.7122-1(b)(2), Proced. & Admin. Regs.
In a section 6330 proceeding, we do not normally conduct an independent review of whether an offer-in-compromise is acceptable. Rather, our review is generally limited to determining whether the hearing officer's or Appeals officer's rejection of the offer-in-compromise submitted by the taxpayer was arbitrary, capricious, or without sound basis in fact or law. Murphy v. Commissioner, 125 T.C. 301, 320 (2005), affd. 469 F.3d 27 (1st Cir. 2006). We have found no abuse of discretion where the hearing officer followed the Commissioner's guidelines in rejecting the taxpayer's collection alternative. See, e.g., McClanahan v. Commissioner, T.C. Memo. 2008-161; Lemann v. Commissioner, T.C. Memo. 2006-37; Schulman v. Commissioner, T.C. Memo. 2002-129.
The Internal Revenue Manual (IRM) contains procedures for the submission and evaluation of offers-in-compromise under section 7122. Under the IRM, absent special circumstances, an offer-in-compromise based on doubt as to collectibility is acceptable if it reflects the taxpayer's reasonable collection potential. 1 Administration, IRM (CCH), pt. 5.8.1.1.3(3), at 16,253-16,254 (Sept. 1, 2005). The IRM provides that a taxpayer's reasonable collection potential consists of, inter alia, the taxpayer's net realizable equity in his assets and his future income potential. Id. pt. 5.8.4.4.1, at 16,307 (Sept. 1, 2005). The IRM defines the net realizable equity in assets as quick sale value, which is usually calculated at 80 percent of the fair market value, less amounts owed to secured lien holders with priority over the Federal tax lien. Id. pt. 5.8.5.3.1(1), (3), at 16,337 (Sept. 1, 2005). The IRM defines the future income potential with respect to a cash offer as expected future income minus necessary living expenses multiplied by 48 months. 16 Id. pt. 5.8.4.4.1, at 16,307 (Sept. 1, 2005); see also id. pt. 5.8.5.5, at 16,339-7 (Sept. 1, 2005).
Ms. Alcorte calculated petitioner's net realizable equity in assets as $6,300. The record indicates she determined this amount by first calculating the quick sale value of the real estate as $32,000 and then subtracting the loan balance of $27,000. She based the calculations on the market value and loan balance information petitioner provided on the Form 433-A. Ms. Alcorte also added the value of petitioner's animals of $1,300. Ms. Alcorte also determined that petitioner's gross monthly income was $3,700 and net monthly income was $1,596. Ms. Alcorte based her calculations of petitioner's income on copies of the 10 checks drawn on the account of TLJ Wrightway, L.L.C., payable to petitioner.
Although we have some concern that Ms. Alcorte's analysis of petitioner's future income was incomplete and her determination of petitioner's future income potential was flawed, we do not need to reach this issue in deciding whether her determination to sustain the proposed levy was an abuse of discretion. Petitioner submitted an offer-in-compromise of $2,000. The offer-in-compromise was $3,000 less than net realizable equity in real estate and $4,250 less than net realizable equity in real estate and horses he owned when he submitted the offer-in-compromise. We conclude that the offer-in-compromise was less than net realizable equity in petitioner's assets, and this fact alone justified Ms. Alcorte's rejection of the offer-in-compromise.
Ms. Alcorte also discussed her concerns about petitioner's offer-in-compromise with petitioner's counsel and gave petitioner a chance to respond before she made her determination to proceed with the proposed collection action. For example, the stipulated record indicates that during the first hearing on October 20, 2005, Mr. O'Laughlin told Ms. Alcorte that on the Form 433-A petitioner overstated the value of real estate due to necessary repairs. However, petitioner never documented the need for repairs, and he did not submit a revised Form 433-A. Petitioner also did not dispute Ms. Alcorte's calculation of petitioner's net realizable equity in his assets based on the information petitioner had submitted. After Ms. Alcorte suggested a partial payment installment agreement during the second hearing, petitioner did not propose a revised collection alternative. Instead, Mr. O'Laughlin conveyed to Ms. Alcorte petitioner's decision not to enter into a partial payment installment agreement as petitioner "would get a better deal by filing for bankruptcy." Petitioner's failure to submit a revised offer-in-compromise or any other reasonable collection alternative supports respondent's determination that the only viable alternative is the proposed levy.
On the basis of the record presented, we conclude that Ms. Alcorte did not abuse her discretion when she rejected petitioner's offer-in-compromise because the offer did not satisfy the requirements for a proper offer-in-compromise based on doubt as to collectibility. We have considered the remaining arguments made by the parties and to the extent not discussed above, conclude those arguments are irrelevant, moot, or without merit. We conclude it is neither necessary nor productive to remand the case to respondent. We sustain respondent's determination to proceed with collection of petitioner's 1993, 1994, 1995, 1996, 1999, and 2000 Federal income tax liabilities.
To reflect the foregoing,
Decision will be entered for respondent.
1 Unless otherwise indicated, all section references are to the Internal Revenue Code, and all Rule references are to the Tax Court Rules of Practice and Procedure.
2 The record indicates that TLJ Wrightway, L.L.C., is the business petitioner operates and to which he referred as "Wright Way Const" on Form 433-A.
3 The TFCU statements show that the owner of the account is Carla J. Gathright. Petitioner provided a voided check drawn on the same account and bearing his name, and he listed the account as his account on Form 433-A.
4 The September 2005 amount includes two deposits of $150 made by transfer from Carla Gathright.
5 Petitioner indicated on the Form 433-A that the automobile valued at $1,000 was subject to a loan, but he did not indicate the loan balance.
6 At Mr. O'Laughlin's request, the telephone hearing originally scheduled for Oct. 13, 2005, was rescheduled for Oct. 20, 2005.
7 In a June 28, 2006, letter Ms. Alcorte explained that she recalculated petitioner's income as $3,700 on the basis of bank statements. However, handwritten notes next to the copies of the checks suggest she relied on the checks rather than the bank statements. It also appears Ms. Alcorte used 2.75 because the checks are dated between July 1 and Sept. 9, 2005, and this time period is not a full 3 months.
8 In the letter dated June 28, 2006, Ms. Alcorte explained that she decreased petitioner's health care expense to $200 to allow the average. The record does not show how Ms. Alcorte calculated the average.
9 The following table shows Ms. Alcorte's calculations:
Income Living expenses
Gross Actual
Source monthly Expense items monthly
Food, clothing,
Net income misc. $649
Housing and
from business $ 3,700 utilities 600
Total 3,700 Transportation 300
Health care 200
Taxes (income and
FICA) 155
Court ordered
payments 200
Total 2,104
10 Although the parties stipulated that petitioner's counsel sent the offer-in-compromise by fax on June 28, 2006, the fax appears to have been sent on June 27, 2006.
11 Petitioner submitted the June 2006 offer-in-compromise with respect to 1993, 1994, 1995, 1996, 1999, and 2000.
12 Ms. Alcorte arrived at petitioner's future income by multiplying petitioner's excess monthly income by 48.
13 In calculating net realizable equity in assets Ms. Alcorte added the value of the mule although petitioner had sold the mule in March 2006.
14 A TXMODA transcript contains current account information from the Commissioner's master file. TXMODA is a command that the Commissioner's employee enters into the Commissioner's integrated data retrieval system (IDRS) to obtain a transcript. Crow v. Commissioner, T.C. Memo. 2002-149 n.6. In essence, IDRS is the interface between the Commissioner's employees and the Commissioner's various computer systems. Id.
15 Although the record does not indicate whether petitioner received a notice of deficiency, he does not challenge the underlying liability.
16 The Financial Analysis Handbook of the IRM (the Handbook), 2 Administration, IRM (CCH), pt. 5.15 (May 1, 2004), as in effect when petitioner submitted his Form 433-A and the offer-in-compromise, provides that net income from self-employment consisted of the amount the taxpayer earned after allowing for ordinary and necessary business expenses. 2 Administration, IRM (CCH), pt. 5.15.1.11(2)(c) (May 1, 2004). The Handbook and part 5.8.5 of the IRM contain instructions for analyzing a taxpayer's financial condition to determine reasonable collection potential. 1 Administration, IRM (CCH), pt. 5.8.5.1(1) at 16,333 (Sept. 1, 2005); 2 Administration, IRM (CCH), pt. 5.15.1.1(1) (May 1, 2004). Both part 5.8.5 of the IRM and the Handbook instruct the reviewing officer to verify the taxpayer's collection information statement. 1 Administration, IRM (CCH), pt. 5.8.5.2(1) at 16,333 (Sept. 1, 2005); 2 Administration, IRM (CCH), pt. 5.15.1.3(3) (May 1, 2004). Such verification includes "reviewing information available from internal sources and requesting that the taxpayer provide additional information or documents that are necessary to determine reasonable collection potential". 1 Administration, IRM (CCH), pt. 5.8.5.2(1) at 16,333 (Sept. 1, 2005); 2 Administration, IRM (CCH), pt. 5.15.1.3(3) (May 1, 2004).
The Handbook provides that the reviewing officer should verify as much of the collection information statement as possible through internal sources, including, inter alia, (1) RTVUE, which is a record of line items from Federal income tax returns and accompanying schedules, Whittington v. Commissioner, T.C. Memo. 1999-279 n.3, or the last filed return, (2) state motor vehicles records, and (3) real estate records. 2 Administration, IRM (CCH), pt. 5.15.1.5(1), (4) (May 1, 2004). The Handbook also provides that the reviewing officer should use RTVUE or the taxpayer's last filed return, including Schedule C, Profit or Loss From Business, to compare the reported income to income declared on the collection information statement. 2 Administration, IRM (CCH), pt. 5.15.1.5(4) (May 1, 2004). The IRM provides that when internal sources are unavailable or indicate a discrepancy, the officer should request the taxpayer to provide reasonable information to support the collection information financial statement. 2 Administration, IRM (CCH), pt. 5.15.1.5(2) (May 1, 2004). With respect to external sources for self-employed taxpayers, the IRM requires the reviewing officer to request certain documents, such as proof of income for the prior 3 months, and to compare average earnings to the Form 433-A income. 1 Administration, IRM (CCH), pt. 5.8.5.2.2.( Fact finding. --Compromises: Fact finding
The IRS's determination to reject a married couple's offer-in-compromise (OIC) and proceed with collection of tax liabilities was not an abuse of discretion. The couple's OIC was rejected because they failed to provide additional requested information needed to evaluate the offer. Further, the couple had been given several opportunities and extensions of time to file their completed OIC. Moreover, they were not current with their estimated taxes.
W.J. DiCindio, CA-3, 2008-1 USTC ¶50,196; aff'g. in part and vac'g and rem'g in part, per curiam, 93 TCM 1060, Dec. 56,884(M), TC Memo. 2007-77.
When computing amounts due to the IRS under a collateral agreement, married taxpayers could not deduct amounts paid in prior years under the agreement. Although the collateral agreement on Form 2261 referred to the wrong line of the couple's offer in compromise on Form 656 when it set out how the payments should be computed, the reference was only a clerical error. Since the reference did not create an ambiguity in the agreement under state (Georgia) law, the agreement was enforced according to its plain terms. Thus, only same-year payments made under the offer in compromise, not prior-year payments made under the collateral agreement, were deductible in determining the couple's annual income.
A.I. Begner, CA-11, 2005-2 USTC ¶50,510.
The issue as to whether or not a settlement agreement was reached, what the terms of such agreement were, and whether the terms were followed was remanded to the District Court since the matter was factual and should first be decided by the District Court.
Six Seam Co., CA-6, 75-2 USTC ¶9765, 524 F2d 347.
Conviction of evasion of taxes for four tax years was affirmed on appeal. The taxpayer argued that the government had improperly granted the chief witness in the trial civil immunity with respect to a tax liability of more than $700,000. However, authorization is provided to the Secretary of the Treasury, or his delegate, or to the Attorney General, if the matter is before the Department of Justice, to compromise any civil or criminal case. Thus, the compromise was not unlawful. Other claims, such as prejudicial publicity, failure to suppress evidence, etc., were overruled.
E.J. Barrett, CA-7, 75-1 USTC ¶9340, 505 F2d 1091. Cert. denied, 421 US 964.
The District Court properly denied taxpayer's suit seeking an injunction against the collection of an income tax assessment. The IRS did not waive any right to a further assessment by agreeing to a settlement and the IRS agent had no authority to compromise taxpayer's tax liability. The taxpayer also had an adequate remedy at law by paying the assessment and suing in the district court for a refund.
C.J. Reimer, CA-5, 71-1 USTC ¶9355, 441 F2d 1129.
A compromise agreement related only to renegotiation matters then pending in the Tax Court and did not include a settlement of an excess profits tax assessment.
H.J. Brubaker, CA-7, 65-1 USTC ¶9274, 342 F2d 655.
The government's receipt of a taxpayer's check and application of funds to a liability under investigation do not comprise a compromise which can be a bar to a later criminal prosecution.
R.G. Jonson, CA-9, 60-2 USTC ¶9680, 281 F2d 884.
Petitioner's contention that a compromise had been entered into was not supported by the evidence where the copy of the supposed compromise offer showed on its face that the form had not been printed until after the date on which the agreement allegedly had been executed.
Hanby, CA-4, 67 F2d 125.
A voluntary disclosure (see ¶41,318.04 and ¶41,318.37) is not a compromise.
Lustig, CA-2, 47-2 USTC ¶9325, 163 F2d 85. Cert. denied, 332 US 775.
Taxpayers who claimed that they had entered into a settlement agreement with the government, but failed to establish the existence of a valid settlement agreement, were not entitled to a refund.
J.P. Devin, DC Wyo., 2006-1 USTC ¶50,264, 423 FSupp2d 1232.
An Appeals officer did not abuse her discretion by denying a taxpayer's offer in compromise, despite the taxpayer's assertion that a change in circumstances had detrimentally affected his financial position and ability to earn future wages. In addition, although there were questions regarding whether the taxpayer could obtain the proceeds of a loan, the IRS's treatment of the loan as an asset was within its discretion and did not constitute an error in judgment.
Alliance Services, Inc., DC Ga., 2005-1 USTC ¶50,248, 363 FSupp2d 1367.
The IRS properly rejected a delinquent accountant's offer in compromise because he had not questioned his tax liability, and collection of the full liability would not cause him economic hardship. Although the taxpayer was unemployed, that appeared to be a temporary situation. Moreover, he had adequate income and assets to pay the liability, his spouse was employed, and he received financial assistance from his adult children who lived at home. Further, no compelling public policy or equity considerations compelled acceptance of the offer.
W.N. Ramos, DC N.Y., 2005-1 USTC ¶50,160.
The IRS did not abuse its discretion when it rejected an individual's offer in compromise. There was evidence that the individual had additional assets that he should have taken into consideration when he made his offer based on the uncollectibility of the tax due.
B.R. Splawn, DC Tenn., 2004-2 USTC ¶50,392.
Taxpayers failed to show they were denied a fair hearing on their appeal of the IRS's determination to levy their property. The IRS did not abuse its discretion by issuing notices of levy following the taxpayers' failure to submit requested documents in support of an offer in compromise by the designated deadline. As a result of the taxpayers' failure to provide the requested information, the IRS officer was faced with incomplete offers-in-compromise and therefore was unable to consider the offers as an alternative to the levy.
Allglass Systems, Inc., DC Pa., 2004-2 USTC ¶50,387, 330 FSupp2d 540.
The terms of taxpayers' Form 2261, Future Income Collateral Agreement, executed as a condition of IRS acceptance of their Form 656, Offer in Compromise, did not permit the deduction of collateral agreement payments when calculating the amount due on the compromise agreement. The agreement required the taxpayers to pay specified percentages of excess income if their income exceeded a stated level of annual income. The taxpayers attempted to deduct from annual income collateral payments relating to prior year tax obligations. However, the clear unambiguous language of the agreement limits deductions to payments for the year in which the annual income is being computed.
A.I. Begner, DC Ga., 2004-1 USTC ¶50,269.
A small payment made by married taxpayers to the IRS did not constitute a compromise for the entire amount of their delinquent tax liabilities that would entitle them to the release of federal tax liens on real property. The parties had no written offer of compromise, and there was no written acceptance by the IRS of such an offer. The record established that the payment related to a tax year for which no liens had been recorded or asserted. Moreover, the IRS did not file a certificate of release relating to the existing tax liens. Finally, the taxpayers failed to prove that the IRS agent who allegedly entered into a compromise with them was authorized to bind the IRS to such an agreement.
R.S. Mungan, BC-DC Tenn., 2003-1 USTC ¶50,146, 292 BR 613.
An appeals officer did not abuse his discretion when he did not accept a taxpayer's offer-in-compromise and instituted collection proceedings for past-due payroll taxes. The taxpayer had a long history of noncompliance with payroll tax laws. In addition, it was not meeting current payroll tax obligations at the time of the appeals hearing. Similarly, the officer's decision not to give the taxpayer a full quarter to demonstrate an ability to comply was not an abuse of discretion.
AJP Management, DC Calif., 2001-1 USTC ¶50,184.
Similarly.
TTK Management, DC Calif., 2001-1 USTC ¶50,185.
A tax shelter investor's action seeking an award of damages against the IRS in connection with its refusal to accept his offers in compromise regarding his tax liability was dismissed because he failed to plead any facts demonstrating a violation upon which relief could be granted. The taxpayer argued that the IRS's Office of Taxpayer Assistance improperly referred his complaints to the Problem Resolution Office, that the IRS failed to negotiate the offers in compromise in good faith, and that the IRS improperly attempted to seize his assets. However, he did not plead any facts from which a trier of fact could infer either a violation of Code Sec. 7811, which governs the issuance of Taxpayer Assistance Orders, or of Code Sec. 7122, which governs offers in compromise.
J.B. Evseroff, DC N.Y., 2000-2 USTC ¶50,807. Aff'd, CA-2 (unpublished opinion), 2001-2 USTC ¶50,486.
An individual failed to prove that he entered into a contract with the IRS to release a federal tax lien on his real property. Since an IRS agent lacked statutory authority to release the lien prior to the taxpayer's discharge in bankruptcy, he could not accept the taxpayer's offer to release the lien for payment and, thus, there was no mutual assent to a settlement agreement. Moreover, even if a contract had been formed, the existence of a material misrepresentation on the part of the taxpayer would have made the contract voidable.
G.J. Buesing, FedCl, 2000-2 USTC ¶50,724.
The Court of Federal Claims properly dismissed married taxpayers' claim that the IRS had wrongfully retained refunds due them as a result of overpayments for several tax years. Although the taxpayers had submitted an offer in compromise for the years at issue, the submission of an offer did not automatically stay the collection of the taxpayers' tax liability. Further, although the IRS may stay the collection of tax while an offer is pending, it was not required to, and could enforce the collection of the liability.
J.R. Smith, FedCl, 2000-1 USTC ¶50,386. Aff'd, per curiam, CA-FC (unpublished opinion), 2001-1 USTC ¶50,177.
Individual taxpayers' motion to dismiss their action against the IRS was without merit. They had not complied with statutes, regulations and procedures governing compromises, which prescribe the exclusive method for settling claims with the IRS. Further, they were not seeking to enforce an agreement to compromise their tax liability but, rather, to extinguish it.
D.W. Pack, DC Calif., 97-2 USTC ¶50,969.
The IRS could assess additional income tax and interest because it had not entered into a settlement agreement with a married couple for the years in question. Code Sec. 7121 and Code Sec. 7122 exclusively govern the settlement of disputed tax liabilities, and no agreement was entered into under those provisions. Letters from the IRS purported to be a settlement offer applied to a different tax year and were not signed by an official authorized to enter into settlement agreements. Further, the taxpayers' filing of amended returns for the disputed years containing changes based on the alleged settlement terms was not evidence of a settlement agreement; the taxpayer cited no authority for such a rule and the use of amended returns as a means of settlement would be contrary to the explicit settlement procedures set out in the Code.
N. Segel, DC Fla., 97-1 USTC ¶50,404.
A debtor's tax liabilities were dischargeable in bankruptcy because 240 days had passed between the date of the IRS assessment of the liabilities and the date of the debtor's bankruptcy petition. Although the debtor made an offer in compromise that tolled the 240-day period, an IRS letter to the debtor constituted a formal rejection, which terminated the pendency of the offer, thus allowing in excess of 240 days to pass between the assessment date and the petition date. The letter stated that the debtor's appeal of the initial rejection of his offer was terminated and that the debtor would have to submit a new offer. Finally, an earlier letter sent by the debtor's representative did not terminate the offer because it indicated that the debtor wanted the offer to be accepted.
C.L. Hobbs, BC-DC Iowa, 97-1 USTC ¶50,127.
IRS admissions, given in response to a corporate taxpayer's request, did not unilaterally settle factual issues in a case after administrative proceedings were completed and the case was referred to the Department of Justice. Therefore, counsel for the government could take a position contrary to that of the IRS concerning volumes and fair market values of the taxpayer's timber that suffered hurricane damage.
International Paper Co., FedCl, 96-2 USTC ¶50,686.
Cross motions regarding the validity of a consent order concerning the release of property wrongfully seized by the IRS from a nominee agent in satisfaction of a bankrupt corporation's tax liability were resolved by the court. Portions of the consent order relating to the individual tax liabilities of the bankrupt corporation's owner were unenforceable because the parties only agreed that the owner would pay an amount in consideration of his offer-in-compromise, not that the government would be bound by the offer.
Barmat, Inc., DC Ga., 95-1 USTC ¶50,089.
A federal tax lien filed against a bankrupt debtor with respect to which the debtor made a partial payment was not released because the lien did not become unenforceable, the debt was not paid in full, and no offer in compromise was accepted by the IRS. There was no evidence that an offer in compromise was submitted or that an agreement between the debtor and the IRS to accept a lesser amount was reached. A request for release of the lien that was sent with the partial payment did not establish that an offer in compromise was submitted and accepted by the IRS. Thus, the bankruptcy estate, to the extent it had funds, was liable for the unsatisfied amount.
Robert Turner Optical, Inc., BC-DC Ala., 94-2 USTC ¶50,555.
On a taxpayer's objections to the magistrate's recommendation (92-1 USTC ¶50,178), the court adopted the earlier finding that Form 656 was binding on the taxpayer. The evidence did not support the contention that Form 656 was superseded by subsequent oral or written agreements.
G.H. Keating, DC Neb., 92-2 USTC ¶50,413.
Since an offer in compromise was valid and binding, the taxpayers could not escape its conclusive bar to their refund suit. The original offer, which was made on Form 656, was later revised and then amended by letter. The letter offered additional consideration for the acceptance of the offer in compromise and did not otherwise supersede the Form 656.
G.H. Keating, DC Neb., 92-1 USTC ¶50,178, 794 FSupp 888.
Since an offer in compromise was valid and binding, the taxpayers could not escape its conclusive bar to their refund suit. The original offer, which was made on Form 656, was later amended by letter. The amendment letter constituted a collateral agreement, which simply offered additional consideration for the acceptance of the offer in compromise. The validity of the offer in compromise on two documents was recognized by both parties and had to be recognized by the court. Furthermore, the taxpayers submitted no evidence of fraud or mutual mistake in entering the compromise agreement, and it appeared that they would have no grounds to make such an allegation.
T. Waller, DC Calif., 91-1 USTC ¶50,288, 767 FSupp 1042.
A settlement report signed by the taxpayer and a representative of the IRS was found to contain provisions settling all issues between the parties and, at the time the report was signed, complete settlement was the clear understanding of the parties. Taxpayer could not later contend that a refund and credits were still due from the IRS.
I.A. Edens, DC S.C., 82-2 USTC ¶9692.
The taxpayer was found liable for the amount of taxes determined in a conference between him and an IRS officer. The taxpayer's contention that there was an agreement reached in that conference which reduced the amount owed was rejected since there was insufficient evidence to find that an agreement had been reached. Further, the IRS officer was not authorized to accept such an agreement even if one had been made.
H.T. Teti, DC Conn., 75-2 USTC ¶9709.
No compromise agreement was found to have been made.
E.O. Piper, DC Ill., 62-1 USTC ¶9194, 202 FSupp 657.
A.F. Pereira, 35 TCM 290, Dec. 33,698(M), TC Memo. 1976-66.
M.E. Roberts, DC Tex., 77-2 USTC ¶9702, 436 FSupp 553.
A collector was not estopped from the collection of income and excess profits taxes legally due but not yet assessed by a compromise agreement, which, although ambiguously worded, both parties intended to relate only to the government's claim for tax upon liquors alleged to have been diverted to beverage use.
Guckenheimer & Bros. Co., DC Pa., 40-1 USTC ¶9271.
The IRS did not abuse its discretion when it rejected an individual's offer in compromise that was based on effective tax administration and doubts as to collectibility. The ability to pay the entire deficiency is a precondition to an offer based on effective tax administration, but it was undisputed that the taxpayer could not pay the full amount of his liability. The taxpayer's offer based on collectibility was also unacceptable because it was substantially less than the IRS calculated he could pay, and he failed to demonstrate any special circumstances that justified his lower offer. The IRS did not improperly refuse to negotiate with the taxpayer, especially since he failed to present a counter-offer after his original offer was rejected. Thus, the IRS rejection of the offer in compromise was not arbitrary, capricious or without sound basis in fact or law.
E.F. Murphy, 125 TC 301, Dec. 56,232.
An IRS Appeals officer's determination to reject married taxpayers' offer-in-compromise did not consider certain relevant factors and, therefore, was remanded to Appeals for further consideration. The record was unclear as to why the Appeals officer found that the taxpayers were not good candidates and why the offer in compromise was denied.
V.F. Dailey, 95 TCM 1582, Dec. 57,461(M), TC Memo. 2008-148.
The IRS Appeals office abused its discretion when it rejected a married couple's offer-in-compromise because of the couple's alleged nominee interest in trust property. The record failed to establish that the Appeals officer even considered whether the taxpayers had an attachable interest in the trust property under state (Maine) law. Therefore, the IRS's motion for summary judgment was denied and the case remanded to the IRS Appeals office to determine whether the IRS may assert an interest in the trust property taking into account both state and federal law.
A. Dalton, Jr., 96 TCM 3, Dec. 57,484(M), TC Memo. 2008-165.
The IRS's determination to proceed with a proposed levy action against a married couple who failed to file a timely return and pay the taxes due was not an abuse of discretion. The copy of the return presented by the taxpayers bore a date after the due date of the return and the taxpayers could not show that the return was filed before the IRS's notification that the return was not received. They also failed to prove that they had paid the tax shown on the return. In addition, the IRS did not abuse its discretion in denying the taxpayers' offers in satisfaction of their tax liability. The taxpayers never submitted an offer-in-compromise as required by applicable guidelines and their informal offers were of unacceptable amounts.
W.R. Kohler, 95 TCM 1493, Dec. 57,434(M), TC Memo. 2008-127.
The IRS did not abuse its discretion in rejecting an offer-in-compromise (OIC) from a businessman who filed tax returns but failed to pay the taxes due over a period in excess of ten years. The OIC, submitted based on doubt as to collectibility, was returned as not processable because the businessman was noncompliant as to his current year return.
R.M. Scharringhausen, 95 TCM 1109, Dec. 57,329(M), TC Memo. 2008-26.
The IRS did not abuse its discretion by rejecting an attorney's offer-in-compromise when there were outstanding excise and income liabilities, nor by determining the attorney's reasonable collection potential (RCP) to be the full amount of his liabilities. Moreover, the IRS properly calculated the future income component of his RCP by using the attorney's average wage income over 3 years since the Internal Revenue Manual recommends averaging over 3 years for similar circumstances and averaging over more years would still have yielded more than the amount he offered. Finally, the IRS effectively balanced the need for efficient tax collection against the concern that collection be no more intrusive than necessary.
H.M. Lloyd, 95 TCM 1061, Dec. 57,316(M), TC Memo. 2008-15.
The IRS Appeals Office did not abuse its discretion by rejecting a married couple's offer-in-compromise where the taxpayers had underreported their income for several tax years due to claimed losses and credits from Hoyt partnership tax shelter investments. The taxpayers argued that their offer should have been accepted because of their age, health and anticipated postretirement earnings. However, the court found that the taxpayers failed to show that payment of more than they offered would render them unable to meet their basis living expenses in retirement.
R. Bergevin, 95 TCM 1031, Dec. 57,307(M) , TC Memo. 2008-6.
The IRS did not abuse its discretion in rejecting a taxpayer's offer-in-compromise of his outstanding tax liabilities. In evaluating his reasonable collection potential, the taxpayer argued that the IRS failed to make an allowance for his basis living expenses greater than provided in published guidance and that the IRS failed to take into consideration his option to file for bankruptcy and potentially discharge some of the tax liabilities. However, the taxpayer had not disclosed any special circumstances that would warrant allowing him a standard of living more lavish that the standard for the area where he lived. The evidence also indicated that the IRS did consider the possibility that the taxpayer might file for bankruptcy; however, in light of the changes to the bankruptcy law, the IRS believed that the taxpayer would not be able to avoid paying the total tax liability by filing for bankruptcy.
C. Klein, 94 TCM 423, Dec. 57,156(M), TC Memo. 2007-325.
The IRS did not abuse its discretion in rejecting an individual's offer in compromise. He had previously made an offer in compromise for one of the years at issue that had been accepted, but he promptly defaulted. His latest offer in compromise was rejected because it did not reflect his ability to pay. Although the individual argued that the IRS erroneously took into account various assets, the existence of other sources of funds supported the findings of the IRS settlement officer.
N.D. Newton, 94 TCM 255, Dec. 57,086(M), TC Memo. 2007-264.
An IRS Appeals officer did not abuse her discretion by determining that an individual could pay her outstanding tax liabilities and sustaining a tax lien. Although the taxpayer made an offer-in-compromise on hardship grounds, the information she submitted on Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, indicated that she had liquid assets in excess the amount of her unpaid tax liabilities for the years at issue.
M.H. Salmassi, 94 TCM 248, Dec. 57,083(M), TC Memo. 2007-261.
The IRS Appeals Office did not abuse its discretion in rejecting a married couple's offer-in-compromise where the taxpayers had underreported their income for several tax years due to claimed losses and credits from Hoyt partnership tax shelter investments. The IRS Appeals officer considered all of the evidence submitted, and reasonably applied the guidelines for evaluating an offer-in-compromise. The offer was unacceptable because, among other reasons, the taxpayers were not forthcoming in establishing their financial status, acceptance of the offer would undermine compliance with the tax laws by taxpayers in general, and the taxpayers had the financial wherewithal to pay more than the offered amount. The officer adequately considered the taxpayers' unique facts and circumstances, and the taxpayers did not show that requiring them to pay more than the offer amount would result in an economic hardship. Public policy did not demand that the taxpayers' offer be accepted because they were victims of fraud, and acceptance of the offer would not enhance voluntary compliance by other taxpayers.
M. Smith, 93 TCM 1047, Dec. 56,880(M), TC Memo. 2007-73.
Refusal to accept a married couple's offer-in-compromise was not an abuse of discretion. The taxpayers did not demonstrate either that they would suffer economic hardship from the proposed collection method or that public policy and equity reasons weighed in favor of accepting their offer. The case was not a "longstanding" case in which forgiveness of penalties and interest was appropriate, and there was no evidence that the IRS Appeals officer failed to give adequate consideration to the taxpayers' unique facts and circumstances. Public policy did not demand acceptance of the offer because the taxpayers were victims of a shelter promoter's fraud. Acceptance of the compromise would reduce the risks involved in investing in tax shelters, undermining voluntary compliance with the tax laws.
G. Hansen, 93 TCM 983, Dec. 56,861(M), TC Memo. 2007-56.
Rejection of a taxpayer's offer in compromise was not an abuse of discretion where the financial information provided by the taxpayer conflicted with the implications of the terms of the taxpayer's marital settlement and separation agreement. The information provided did not explain the inconsistencies with regard to the ownership of various assets; thus, it was not sufficient to permit a reasonable analysis of the taxpayer's offer.
J.J. Kerr, 93 TCM 932, Dec. 56,846(M), TC Memo. 2007-43.
The IRS's rejection of an offer-in-compromise from investors in a cattle-breeding tax shelter was not arbitrary, capricious or without sound basis in fact or law, and the IRS was allowed to proceed with its collection action. The IRS did not abuse its discretion in rejecting the offer despite the taxpayer's claim of special circumstances or economic hardship. The IRS was not required to address every aspect of the taxpayers' special circumstances in the notice of determination and its calculation of the taxpayers' reasonable collection potential far exceeded the taxpayers' offer. In addition, the IRS was not required to accept the taxpayer's offer based on considerations of public policy or equity. The longstanding nature of the taxpayers' case did not require acceptance of the offer-in-compromise, the IRS could rely on an example in the Internal Revenue Manual that was similar although not identical to the taxpayers' case, and the IRS did not have to consider all of the taxpayers' equitable facts, including their claim that they were victims of fraud. Finally, the taxpayers' other arguments regarding compromise of penalties and interest, the IRS's alleged failure to provide the court with sufficient information, the IRS's deadline for submission of information, the husband's pending innocent spouse claim and the IRS's alleged failure to balance the need for efficient tax collection of taxes with the concern that collection be no more intrusive than necessary were rejected.
C. Andrews Est., 93 TCM 891, Dec. 56,831(M), TC Memo. 2007-30.
An IRS Appeals officer did not abuse her discretion by rejecting a married couple's offer-in-compromise based on doubt as to collectibility with special circumstances and effective tax administration. The guidelines for acceptance based on doubt as to collectibility with special circumstances were not met because the taxpayers were able to pay far more than the amount that they offered. Further, the Appeals officer properly concluded that acceptance of the offer-in-compromise would not promote effective tax administration. Acceptance of the offer would undermine compliance with the tax laws by encouraging more taxpayers to participate in tax shelters. The couple failed to identify compelling public policy or equity concerns to show that acceptance of their offer-in-compromise was appropriate. Therefore, the IRS was permitted to proceed with the proposed collection action.
B.E. Johnson, 93 TCM 885, Dec. 56,830(M), TC Memo. 2007-29.
The IRS's rejection of an offer-in-compromise from investors in a cattle-breeding tax shelter was not arbitrary, capricious or without sound basis in fact or law, and the IRS was allowed to proceed with its collection action. The IRS did not abuse its discretion in rejecting the offer despite the taxpayer's claim of exceptional circumstances. In addition, the IRS was not required to accept the taxpayer's offer based on considerations of public policy or equity. The longstanding nature of the taxpayers' case did not require acceptance of the offer, the IRS could rely on an example in the Internal Revenue Manual that was similar although not identical to the taxpayers' case, and the IRS did not have to consider the taxpayers' claim that they were victims of fraud. Finally, the taxpayers' other arguments regarding compromise of penalties and interest, the IRS's alleged failure to provide the court with sufficient information, the IRS's refusal to delay the Code Sec. 6330 hearing, the wife's pending innocent spouse claim, and the IRS's alleged failure to balance the need for efficient tax collection with the concern that collection be no more intrusive than necessary were rejected.
G. Freeman, 93 TCM 879, Dec. 56,829(M), TC Memo. 2007-28.
An IRS Appeals officer did not abuse her discretion by rejecting a married couple's offer-in-compromise based on doubt as to collectibility with special circumstances and effective tax administration. The guidelines for acceptance based on doubt as to collectibility with special circumstances were not met because the taxpayers were able to pay far more than the amount that they offered. Further, the Appeals officer properly concluded that acceptance of the offer-in-compromise would not promote effective tax administration. Acceptance of the offer would undermine compliance with the tax laws by encouraging more taxpayers to participate in tax shelters. The couple failed to identify compelling public policy or equity concerns to show that acceptance of their offer-in-compromise was appropriate. Therefore, the IRS was permitted to proceed with the proposed collection action.
F. Hubbart, 93 TCM 870, Dec. 56,827(M), TC Memo. 2007-26.
The IRS's rejection of an offer-in-compromise from investors in a cattle-breeding tax shelter was not arbitrary, capricious or without sound basis in fact or law, and the IRS was allowed to proceed with its collection action. The IRS did not abuse its discretion in rejecting the offer despite the taxpayers' claim of special circumstances or economic hardship. The IRS was not required to address every aspect of the taxpayers' special circumstances in the notice of determination and its calculation of the taxpayers' reasonable collection potential far exceeded the taxpayers' offer. In addition, the IRS was not required to accept the taxpayers' offer based on considerations of public policy or equity. The longstanding nature of the taxpayers' case did not require acceptance of the offer, the IRS could rely on an example in the Internal Revenue Manual that was similar although not identical to the taxpayers' case, and the IRS did not have to consider the taxpayers' claim that they were victims of fraud. Finally, the taxpayers' other arguments regarding compromise of penalties and interest, the IRS's alleged failure to provide the court with sufficient information, the IRS's refusal to delay the Code Sec. 6330 hearing, and the IRS's alleged failure to balance the need for efficient tax collection with the concern that collection be no more intrusive than necessary were rejected.
R. Carter, 93 TCM 861, Dec. 56,826(M), TC Memo. 2007-25.
The IRS did not abuse its discretion in rejecting an individual's offer-in-compromise (OIC) for a liability that arose from his claimed losses and credits from his involvement in a Hoyt partnership. Accepting the offer would not have promoted effective tax administration because reducing the risk of participating in tax shelters would encourage more taxpayers to run those risks, thus undermining, not enhancing, compliance with the tax laws.
D.O. Abelein, 93 TCM 857, Dec. 56,825(M), TC Memo. 2007-24.
An IRS Appeals officer did not abuse her discretion in rejecting a taxpayer's offer-in-compromise. The liability arose from claimed losses and credits arising from the taxpayer's involvement in a Hoyt partnership. The taxpayer did not show that the determination by the IRS was arbitrary or capricious, or without sound basis in fact or law; therefore, the IRS was permitted to proceed with the proposed collection action.
D. Ertz, 93 TCM 696, Dec. 56,816(M), TC Memo. 2007-15.
An IRS Appeals officer did not abuse her discretion in rejecting a taxpayer's offer-in-compromise. The Appeals officer correctly concluded that acceptance of the offer-in-compromise would not promote effective tax administration. Further, she did not abuse her discretion in determining that the taxpayer's real property had a value in excess of the amount indicated by the taxpayer, which was based on an outdated appraisal, and she correctly determined that the reasonable collection potential was greater than the taxpayer's offer amount.
G.W. McDonough, 92 TCM 386, Dec. 56,665(M), TC Memo. 2006-234.
The IRS's decision to reject an individual's offer in compromise and proceed with collection of his federal tax liabilities was remanded for further consideration and clarification. Although the IRS's analysis of the offer indicated that the taxpayer's reasonable collection potential was zero, the IRS concluded that acceptance of the offer would not be in the best interest of the government under Internal Revenue Manual (IRM) sec. 5.8.7.6(5) because of the taxpayer's egregious history of noncompliance and the likelihood that he would be unable to remain in compliance during the offer term. However, the IRS's application of IRM sec. 5.8.7.6(5) was inconsistent with IRS policy statement P-5-100, on which the IRM relies. Policy statement P-5-100 describes "best interest of the government" only in terms of the potentially collectible amount and does not mention past non-compliance as a criterion for rejection of an offer. Because the reasoning behind the rejection of the offer was unclear, the Tax Court could not determine whether the IRS's decision to reject the offer and proceed with collection was an abuse of discretion.
R.W. Oman, 92 TCM 372, Dec. 56,662(M), TC Memo. 2006-231.
An IRS Appeals officer did not abuse his discretion in rejecting married taxpayers' offer-in-compromise. The Appeals officer correctly concluded that the taxpayers had withdrawn their arguments in favor of a compromise based on doubt as to collectibility with special circumstances and effective tax administration based upon the taxpayers' correspondence. Although the Appeals officer made errors in his calculation of collection potential, he nevertheless correctly determined that the reasonable collection potential was greater than the taxpayers' offer amount. The taxpayers' arguments that the Appeals officer (1) failed to provide sufficient information for review, (2) abused his discretion by refusing to consider an offer-in-compromise for unassessed years, and (3) failed to consider less intrusive collection alternatives were properly rejected.
W.H. Lindley, 92 TCM 363, Dec. 56,659(M), TC Memo. 2006-229.
An Appeals officer acted within her discretion by waiting to schedule a hearing until after a married couple's appeal to the Court of Appeals was resolved because once the IRS has referred a case to the Department of Justice for defense or prosecution, only the Attorney General or his delegate has the authority to compromise it.
H.D. Summers, 92 TCM 345, Dec. 56,647(M), TC Memo. 2006-219.
The IRS properly rejected the offer-in-compromise based on doubt as to collectibility with special circumstances because the taxpayers had assets adequate to pay more than their offer and failed to prove the existence of any special circumstances. The IRS also properly rejected the offer-in-compromise made on grounds of public policy and equitable consideration. The taxpayer's argument that penalties and interest are required to be forgiven in longstanding cases was rejected. The taxpayer's argument that the IRS improperly relied upon a similar example in the Internal Revenue Manual was also rejected. Also, the fact that the taxpayer may have been defrauded by Hoyt was not persuasive as many other investors in these partnerships had been deemed liable for the interest and penalties despite supposed fraud. All of the taxpayer's arguments that the IRS abused its discretion were also rejected.
D. Ertz, 92 TCM 296, Dec. 56,630(M), TC Memo. 2006-204.
IRS representatives did not accept or intend to accept the offer of a husband and wife to settle their tax deficiency case. The IRS appeals officer to whom the offer letter was sent did not make a written or oral response, and did not accept the offer. The IRS's counsel in the case did not accept the offer, where the offer was not made to him, he was unaware of its specifics, and the appeals officer conducted the negotiations. Although it was disputed whether the IRS's counsel had told taxpayers' counsel that a settlement had been reached, IRS counsel's statement was, at best, his understanding of the intent or actions of the appeals officer or her office.
R.R. Smith, 92 TCM 219, Dec. 56,611(M), TC Memo. 2006-187.
The IRS did not abuse its discretion in rejecting an offer-in-compromise and sustaining a proposed levy action against a taxpayer who was a partner in a cattle breeding partnership through which he claimed deductions for farming losses and carried back related net operating losses that gave rise to refunds. The Tax Court rejected the taxpayer's argument that the longstanding nature of the case required the IRS to accept his offer-in-compromise for the same reasons that the Court of Appeals for the Ninth Circuit considered and rejected that argument in C.G. Fargo, CA-9, 2006-1 USTC 50,326, 447 F3d 706. Further, IRS's reliance on an example in the Internal Revenue Manual was not arbitrary or capricious. Also, the mere fact that certain "equitable facts" present in the case did not persuade the IRS did not mean that they were not considered. Finally, the IRS did not fail to balance the need for efficient collection of taxes with the concern that the collection action not be more intrusive than necessary. The IRS did seek to collect the taxpayer's outstanding tax liability through less intrusive means --an installment agreement. But the taxpayer rejected it.
M. Keller, 92 TCM 114, Dec. 56,587(M), TC Memo. 2006-166.
An IRS Appeals officer did not abuse her discretion in rejecting a $32,000 offer-in-compromise from a husband and wife who had more than $400,000 in unpaid tax liabilities, including interest and penalties, resulting from participation in discredited tax shelter partnerships organized and operated by A.J. Hoyt. The guidelines for acceptance due to collectibility with special circumstances were not met because the amount offered was inadequate relative to the $140,000 in assets admittedly owned by the taxpayers. All special circumstances presented by the taxpayers regarding their financial situation had been reviewed by the Appeals officer and failed to establishment economic hardship. The guidelines for acceptance based on effective tax administration were not satisfied because acceptance would actually tend to encourage taxpayers to risk participation in tax shelters and, thereby, reduce effective tax administration. Furthermore, acceptance based on effective tax administration requires that a taxpayer's equity in assets plus future income equal or exceed the amount to be compromised and this condition was not met. The IRS was, therefore, entitled to move forward with its proposed levy.
R. Barnes, 92 TCM 31, Dec. 56,570(M), TC Memo. 2006-150.
An IRS Appeals officer did not abuse his discretion in rejecting both offers in compromise submitted by married taxpayers. Both offers were substantially less than the amount collectible determined by an IRS officer using published guidelines. Since the taxpayers failed to demonstrate any special circumstances, the determination to levy for the full tax liability was proper.
A.A. Lemann III, 91 TCM 846, Dec. 56,443(M), TC Memo. 2006-37.
The IRS did not abuse its discretion in determining to proceed with collection of an individual's unpaid tax liability. The IRS's failure to consider the taxpayer's offer to compromise his tax liability for a nominal amount was not an abuse of discretion. The taxpayer submitted the offer in compromise after the scheduled CDP hearing and final notice was issued. Accordingly, the IRS could not have considered the offer at the CDP hearing.
M.H. Hajiyani,, 90 TCM 153, Dec. 56,121(M), TC Memo. 2005-198.
An IRS settlement officer did not abuse her discretion in rejecting a married couple's offer in compromise. The officer rejected the offer after determining that the taxpayers had sufficient income and assets to satisfy the liability in full. The officer complied with the requirements of Code Sec. 6330 and did not abuse her discretion under Code Sec. 7122.
D.A. Singer, 90 TCM 67, Dec. 56,098(M), TC Memo. 2005-175.
An Appeals officer's determination that the IRS could proceed with a levy against an individual taxpayer was not an abuse of discretion. The taxpayer's claim that she had requested, but was not granted, a face-to-face interview was not persuasive. Moreover, the taxpayer had been given 30 days to revise her offer in compromise, and her case was not closed for six weeks after that time period had lapsed, but even with the additional time, the taxpayer did not revise her offer or provide the additional information that had been requested.
M.J. Chandler, 89 TCM 1113, Dec. 56,011(M), TC Memo. 2005-99.
The IRS did not act arbitrarily, capriciously or without sound basis in fact or law when it rejected a delinquent taxpayer's offer in compromise (OIC). Thus, its determination to proceed with the collection action against him was sustained. The record reflected that throughout the administrative process, the taxpayer was given multiple and repeated opportunities to submit sufficient information to support his offer in compromise. Because such information was not provided in a timely manner, the IRS's decision to the reject the OIC was sustained.
S. Roman, 87 TCM 835, Dec. 55,522(M), TC Memo. 2004-20.
The IRS did not act arbitrarily, capriciously, or without sound basis in fact or law when it rejected a delinquent taxpayer's offer in compromise. Thus, its determination to proceed with the collection action against her was sustained. The IRS considered the taxpayer's circumstances in light of the prescribed guidelines for accepting offers. It reasonably concluded that the evidence failed to establish either the requisite economic hardship or other exceptional factors demonstrating that compromise of the liability would not undermine voluntary compliance with the tax laws.
D.M. Chandler, 87 TCM 804, Dec. 55,508(M), TC Memo. 2004-7.
An IRS Appeals officer's rejection of an individual's Form 656, Offer in Compromise, was not an abuse of discretion. The Tax Court noted the possibility that an IRS revenue officer's financial analysis of the taxpayer, based on information that the taxpayer provided, was flawed. However, the Tax Court declined to conclude that the information the taxpayer provided was reasonable or that consideration of his amended offer in compromise would have changed the Appeals officer's determination. The determination also indicated that a levy was necessary to induce payment, which was reasonable based on the taxpayer's long history of delinquency. Consequently, neither rejection of the taxpayer's initial offer nor his amended offer constituted an abuse of discretion.
R.G. Van Vlaenderen, 86 TCM 736, Dec. 55,382(M), TC Memo. 2003-346.
The IRS did not act arbitrarily, capriciously, or without sound basis in fact or law when it rejected a delinquent couple's offer in compromise. Thus, its determination to proceed with the collection action against them was sustained. The IRS considered the taxpayers' circumstances in light of the prescribed guidelines for accepting offers. It reasonably concluded that the evidence failed to establish either the requisite economic hardship or other exceptional factors demonstrating that compromise of the liability would not undermine voluntary compliance with the tax laws.
J.J. Crisan, 86 TCM 601, Dec. 55,350(M), TC Memo. 2003-318.
The IRS did not act arbitrarily, capriciously, or without sound basis in fact or law when it rejected a delinquent taxpayer's offer in compromise. Thus, its determination to proceed with the collection action against him was sustained. The taxpayer failed to submit a properly completed Form 656, Offer in Compromise, and the required financial information for the consideration of his request.
C.R. Neugebauer, 86 TCM 467, Dec. 55,323(M), TC Memo. 2003-292.
The IRS did not act arbitrarily, capriciously, or without sound basis in fact or law when it rejected a delinquent taxpayer's offer in compromise. Thus, its determination to proceed with the collection action against her was sustained. The IRS considered the taxpayer's circumstances in light of the prescribed guidelines for accepting offers. Further, it reasonably concluded that the evidence failed to establish either the requisite economic hardship or other exceptional factors demonstrating that compromise of the liability would not undermine voluntary compliance with the tax laws.
A.H. O'Brien, 86 TCM 461, Dec. 55,321(M), TC Memo. 2003-290.
An IRS Appeals officer did not abuse his discretion in presenting a proposed offer in compromise and refusing an offer in compromise proposed by married taxpayers during a Collection Due Process hearing. The IRS's proposal for the collection of the taxpayers' delinquent taxes, which spanned 14 years, was computed according to the guidelines provided in the IRS manual, taking into consideration the husband's age and poor health.
R.M. Galvin, 86 TCM 353, Dec. 55,289(M), TC Memo. 2003-263.
An IRS Appeals officer did not abuse her discretion in denying a taxpayer's offer in compromise relating to her underlying tax liability for several tax years. The offer in compromise was considered in detail and it was appropriately concluded that it did not fairly represent the taxpayer's ability to pay her tax debt. Moreover, contrary to the taxpayer's assertion, the IRS's failure to send her a written rejection of her in compromise for one tax year did not deprive her of any administrative appeal rights.
D. Moorhous, 85 TCM 1538, Dec. 55,198(M), TC Memo. 2003-183.
The IRS's refusal to consider an individual's offer in compromise because she had not filed all required tax returns was not an abuse of discretion. The taxpayer's testimony and copies of some of her returns were not as persuasive in showing that she had filed returns for the thirteen tax years at issue as the IRS's certificate of official record and the testimony of agents in showing that her tax returns had not been filed. The IRS required all of the financial information supporting her offer in compromise in order to evaluate its acceptability. Thus, it was a reasonable exercise of discretion for the IRS to deny the taxpayer's offer in compromise.
S.S. Rodriguez, 85 TCM 1414, Dec. 55,168(M), TC Memo. 2003-153.
An IRS Appeals officer did not abuse her discretion in denying a taxpayer's offer in compromise relating to his underlying tax liability for several tax years. The taxpayer's history of noncompliance, the late filing of his income tax return for one tax year, and the delinquency on his estimated tax payments for a subsequent tax year established his failure to be in current compliance with his federal income tax liabilities and supported the Appeals officer's determination disapproving of the offer in compromise. The taxpayer's argument that the Appeals officer failed to have her proposed rejection of the offer in compromise reviewed by an "independent reviewer" was not supported by the record.
C. Londono, 85 TCM 1121, Dec. 55,107(M), TC Memo. 2003-99.
An IRS Appeals Office agent did not abuse his discretion in denying a taxpayer's second offer in compromise relating to his underlying tax liability for six tax years. Contrary to the taxpayer's assertion, the offer in compromise was considered in detail and it was appropriately concluded that it did not fairly represent the taxpayer's ability to pay his tax debt.
A.C. Schenkel, 85 TCM 839, Dec. 55,043(M), TC Memo. 2003-37.
A dentist who attempted to repay a loan from a profit-sharing plan via a prohibited transaction several years later, and who actually repaid the loan with interest in a subsequent tax year as part of a settlement with the IRS, was allowed a deduction for the investment interest payment in that subsequent year. The IRS was bound by the settlement and, thus, could not claim that the taxpayer had repaid the loan early through the prohibited transaction.
F.E. Hickman, 74 TCM 1346, Dec. 52,390(M), TC Memo. 1997-545.
Negotiations between individuals and the IRS regarding alleged deficiencies arising out of tax-shelter investments and occurring before the docketing of any cases in the Tax Court were not compromises that were formally submitted using the appropriate documents. Therefore, the negotiations did not bind the IRS. In one instance, the evidence failed to establish acceptance of the IRS offer; in another, it showed that the IRS offer had been rejected; and, in a third, it demonstrated that no offer had ever been made.
R.W. Rohn, 67 TCM 3030, Dec. 49,876(M), TC Memo. 1994-244.
The parties to a settlement agreement did not intend for the agreed-upon increases in the taxpayers' income to be mitigated by additional claims of tax deductions and benefits, such as income averaging, an increased general sales tax deduction, the deduction for a married couple when both work, and the offset of the corporate taxpayer's additional taxable income with a net operating loss. None of the additional items were mentioned in the settlement or raised prior to settlement, and what the taxpayers mistakenly failed to insert into the terms of the agreement could not thereafter be included.
Yoo Han & Co., 62 TCM 83, Dec. 47,455(M), TC Memo. 1991-308.
A couple's payment for release of a tax lien that resulted from unpaid 1983 taxes did not constitute a settlement of their entire 1983 tax liability and did not preclude the IRS from subsequently determining a deficiency for unpaid self-employment taxes for the same year. Although the IRS had issued a certificate of lien release, the evidence was insufficient to establish that the IRS, either orally or in writing, had agreed to compromise the taxpayers' entire tax liability in exchange for payment to release the lien.
R. Foulds, 56 TCM 1112, Dec. 45,433(M), TC Memo. 1989-29.
An agreed-upon settlement agreement based upon a specific dollar amount and not upon concessions of any underlying legal or factual issues was enforced by the court under principles of contract law. The taxpayer made a unilateral mistake of fact in thinking that such amounts could be further reduced by net operating loss carrybacks where the Commissioner was not aware of the existence of such carrybacks and the issue was not raised by the taxpayer.
V.F. Himmelwright, 55 TCM 403, Dec. 44,644(M), TC Memo. 1988-114.
The taxpayer was required to recognize the entire long-term capital gain it realized upon the 1969 sale of property it had originally acquired through its acquisition and liquidation of another corporation. It was not shown that the Commissioner had agreed in a 1964 audit to eliminate any capital gain derived from the future sale of the property in question.
Baker Industries, Inc., 37 TCM 1842, Dec. 35,504(M), TC Memo. 1978-440.
Chief Counsel advised that the IRS could not accept an offer in compromise submitted by one of the general partners of a defunct partnership to compromise the partner's individual derivative share of the employment tax obligations of the partnership. The employment tax obligations represented a single liability assessed against the partnership. The partnership liability was the only liability subject to compromise and any compromise of the liability had to involve a thorough analysis of the partnership assets and the assets of the other general partners.
CCA Letter Ruling 200127009, March 30, 2001.
The IRS's rejection of an offer in compromise wherein the non-liable spouse refused to provide all financial information needed to evaluate the taxpayer's percentage of shared expenses was a permissible exercise of its discretion. The mere fact that the non-liable spouse provided a sworn statement that all of the taxpayer's income was contributed toward their living expenses was insufficient to preclude the IRS's rejection of the taxpayer's offer. Although IRS procedures do not clearly show that rejection is permissible under the given circumstances, each offer in compromise may be evaluated on its merits. Therefore, the IRS was entitled to conclude that the offer was not in its best interest and reject it.
CCA Letter Ruling 200129010, March 26, 2001.
Chief Counsel concluded that an individual who erroneously believed that she was not entitled to innocent spouse relief because she filed a joint return and subsequently entered into an offer in compromise with the IRS was not entitled to set aside the compromise. The government was not mistaken in law or fact regarding the taxpayer's liability for those tax years. Likewise, the taxpayer was not mistaken regarding facts surrounding her case. However, she failed to affirmatively raise the issue of innocent spouse relief prior to the government's acceptance of the offer. Because the taxpayer's mistake was unilateral, based upon her misunderstanding of the law, there were no grounds to set aside the offer in compromise.
Technical Advice Memorandum 200120009, February 6, 2001.
An IRS Appeals officer properly applied standard allowances to determine a taxpayer's living expenses in rejecting his offer in compromise based on doubt as to collectability. The taxpayer's reasonable collection potential was much greater than his offer in compromise and also much greater than his total tax liability. The taxpayer's contention that actual living expenses, rather than standard allowances, should be used in determining reasonable collection potential was rejected. Nothing on the record showed that the Appeals officer's determination was arbitrary or unreasonable.
L. Fernandez, Dec. 57,531(M), TC Memo. 2008-210.
An IRS Appeals officer did not abuse his discretion in issuing a final determination to levy when the taxpayer failed to provide the necessary financial information to properly consider his offer in compromise. Further, the 10-year statute of limitations for collection had not expired since his offer in compromise waived the running of the statute of limitations until the offer was rejected.
J.G. Nash, Dec. 57,578(M), TC Memo. 2008-250.6), at 16,335 (Sept. 1, 2005).
Labels: New offer in compromise case 7122
