Wednesday, June 4, 2008

Whan an Offer in Compromise will not apply.

The IRS does not have the authority to accept an offer in compromise (OIC) when:

(1) questions concerning the amount of the taxpayers liability or the collection of a liability for all or part of the periods the taxpayer owes is in litigation;

(2) the federal tax liability for all or part of the periods the taxpayer owes has been reduced to a judgment;

(3) the IRS has a civil or criminal prosecution pending against the taxpayer in the Department of Justice (DOJ) or United States Attorneys Office;

(4) acceptance of the offer is dependent upon the acceptance of a related offer or upon a settlement under the authority of the Department of Justice (Internal Revenue Manual, 09-01-2005.

Taxpayers are responsible for initiating the first specific proposal for compromise and will not be advised on the amount to be offered. The offer should be a legitimate compromise proposal based on ability to pay. It should not be considered a fishing expedition based on the theory that the IRS will accept any amount.

Under regulations issued prior to the enactment of the Tax Increase Prevention and Reconciliation Act of 2005 ( P.L. 109-222), sums submitted with an offer in compromise or while an offer was pending were considered refundable deposits and would not be applied to the liability unless the offer was accepted or the taxpayer authorized in writing that the deposit could be applied to the liability. However, for offers submitted on or after July 16, 2006, taxpayers are required to make nonrefundable partial payments with their offers (Code Sec. 7122(c), as added by P.L. 109-222).

If the offer is accepted, taxpayers waive certain refunds or credits that they might otherwise be entitled to receive. On doubt as to collectibility offers only, acceptance of the offer will require the taxpayer to comply fully with all filing and payment requirements over the next five years. Failure to comply will be treated the same as a default in payment.

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