Friday, October 3, 2008

The IRS has published procedures applicable to the submission and processing of offers to compromise a tax liability under Code Sec. 7122. The procedures reflect IRS imposition of an offer in compromise application fee, effective November 1, 2003.
Most of the offers in compromise are based on reasonable collection potential An offer to compromise based on doubt as to collectibility generally will be considered acceptable if it is unlikely that the tax can be collected in full and the offer reasonably reflects the amount the Service could collect through other means, including administrative and judicial collection remedies. See Policy Statement P-5-100. This amount is the reasonable collection potential of a case. In determining the reasonable collection potential of a case, the Service will take into account the taxpayer's reasonable basic living expenses. In some cases, the Service may accept an offer of less than the total reasonable collection potential of a case if there are special circumstances.


Full Text --Rev. Proc. 2003-71




SECTION 1. PURPOSE

The purpose of this revenue procedure is to explain the procedures applicable to the submission and processing of offers to compromise a tax liability under section 7122 of the Internal Revenue Code. These procedures reflect changes to the law made by the Internal Revenue Service Restructuring and Reform Act of 1998, Public Law 105-206 (112 Stat. 685, 764).



SECTION 2. BACKGROUND

.01 Section 7122 permits the Secretary of the Treasury or his delegate to compromise any civil or criminal liability arising under the internal revenue laws before the case is referred to the Department of Justice for prosecution or defense.

.02 The Secretary has developed guidelines and procedures for the submission and evaluation of offers to compromise under section 7122. These guidelines can be found in § 301.7122-1 of the Regulations on Procedure and Administration, the Internal Revenue Manual, and various forms and publications issued by the Internal Revenue Service (Service). This revenue procedure supplements and clarifies the procedures identified in § 301.7122-1.

.03 This revenue procedure includes provisions relating to the offer in compromise application fee, required under § 300.3 of the Regulations on User Fees and effective November 1, 2003.



SECTION 3. SCOPE

This revenue procedure applies to all offers to compromise a civil or criminal liability under section 7122 submitted to the Service, except for those offers submitted directly to the Office of Appeals. This revenue procedure does not apply to offers to compromise a tax liability after a case involving a civil or criminal liability has been referred to the Department of Justice for prosecution or defense.



SECTION 4. SUBMITTING AN OFFER TO COMPROMISE

.01 An offer to compromise a tax liability must be submitted in writing on the Service's Form 656, Offer in Compromise. None of the standard terms may be stricken or altered, and the form must be signed under penalty of perjury. The offer should include all liabilities to be covered by the compromise, the legal grounds for compromise, the amount the taxpayer proposes to pay, and the payment terms. Payment terms include the amounts and due dates of the payments. The offer should also contain any other information required by Form 656. The Service occasionally revises Form 656 and may require offers to be submitted on the most recent version of the form. The most recent version of the form and instructions are available on the Service's website at www.irs.gov.

.02 An offer to compromise a tax liability should set forth the legal grounds for compromise and should provide enough information for the Service to determine whether the offer fits within its acceptance policies.

(1) Doubt as to liability. Doubt as to liability exists where there is a genuine dispute as to the existence or amount of the correct tax liability under the law. Doubt as to liability does not exist where the liability has been established by a final court decision or judgment concerning the existence of the liability.

An offer to compromise based on doubt as to liability generally will be considered acceptable if it reasonably reflects the amount the Service would expect to collect through litigation. This analysis includes consideration of the hazards of litigation that would be involved if the liability were litigated. The evaluation of the hazards of litigation is not an exact science and is within the discretion of the Service.

(2) Doubt as to collectibility. Doubt as to collectibility exists in any case where the taxpayer's assets and income cannot satisfy the full amount of the liability.

An offer to compromise based on doubt as to collectibility generally will be considered acceptable if it is unlikely that the tax can be collected in full and the offer reasonably reflects the amount the Service could collect through other means, including administrative and judicial collection remedies. See Policy Statement P-5-100. This amount is the reasonable collection potential of a case. In determining the reasonable collection potential of a case, the Service will take into account the taxpayer's reasonable basic living expenses. In some cases, the Service may accept an offer of less than the total reasonable collection potential of a case if there are special circumstances.

(3) Promotion of effective tax administration.

(a) The Service may compromise to promote effective tax administration where it determines that, although collection in full could be achieved, collection of the full liability would cause the taxpayer economic hardship. Economic hardship is defined as the inability to pay reasonable basic living expenses. See § 301.6343-1(d). No compromise may be entered into on this basis if compromise of the liability would undermine compliance by taxpayers with the tax laws.

An offer to compromise based on economic hardship generally will be considered acceptable when, even though the tax could be collected in full, the amount offered reflects the amount the Service can collect without causing the taxpayer economic hardship. The determination to accept a particular amount will be based on the taxpayer's individual facts and circumstances.

(b) If there are no other grounds for compromise, the Service may compromise to promote effective tax administration where compelling public policy or equity considerations identified by the taxpayer provide a sufficient basis for compromising the liability. Compromise will be justified only where, due to exceptional circumstances, collection of the full liability would undermine public confidence that the tax laws are being administered in a fair and equitable manner. The taxpayer will be expected to demonstrate circumstances that justify compromise even though a similarly situated taxpayer may have paid his liability in full. No compromise may be entered into on this basis if compromise of the liability would undermine compliance by taxpayers with the tax laws.

An offer to compromise based on compelling public policy or equity considerations generally will be considered acceptable if it reflects what is fair and equitable under the particular facts and circumstances of the case.

.03 The offer should include all information necessary to verify the grounds for compromise. Except for offers to compromise based solely on doubt as to liability, this includes financial information provided in a manner approved by the Service. Individual or self-employed taxpayers must submit a Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, together with any attachments or other documentation required by the Service. Corporate or other business taxpayers must submit a Form 433-B, Collection Information Statement for Businesses, together with any attachments or other documentation required by the Service. The Service may require the corporate officers or individual partners of a business taxpayer to complete a Form 433-A.

.04 An offer to compromise a tax liability should be mailed to the appropriate address listed on Form 656. The Service may, in its discretion, receive offers to compromise in other manners. Simply because the Service has received an offer does not mean that it has accepted the offer for processing such that the offer is considered pending within the meaning of section 6331(k)(1). Accepting an offer for processing is addressed in Section 5.01 of this revenue procedure.

.05 If a deposit is submitted with the offer to compromise and the taxpayer authorizes application of a deposit to tax liabilities, it will be credited to the taxpayer's account as of the day the deposit is first received.



SECTION 5. WHEN AN OFFER BECOMES PENDING AND RETURN OF OFFERS

.01 Section 6331(k)(1) generally prohibits the Service from making a levy on a taxpayer's property or rights to property while an offer to compromise a liability is pending with the Service, for 30 days after the rejection of an offer to compromise, or while an appeal of a rejection is pending. The statute of limitations on collection is suspended while levy is prohibited. An offer to compromise becomes pending when it is accepted for processing. The Service accepts an offer to compromise for processing when it determines that: the offer is submitted on the proper version of Form 656 and Form 433-A or B, as appropriate; the taxpayer is not in bankruptcy; the taxpayer has complied with all filing and payment requirements listed in the instructions to Form 656; the taxpayer has enclosed the application fee, if required; and the offer meets any other minimum requirements established by the Service. A determination that the offer meets these minimum requirements means that the offer is processable.

.02 A determination is made to accept an offer to compromise for processing when a Service official with delegated authority to accept an offer for processing signs the Form 656. The date the Service official signs the Form 656 is recorded on the Service's computers. As of this date, levy is prohibited unless the Service determines that collection of the liability is in jeopardy.

.03 If the Service determines that an offer to compromise a liability does not meet the minimum requirements the Service has established for a processable offer, the offer to compromise is not processable and may be returned to the taxpayer. Because the offer to compromise was never accepted for processing, it was never pending and levy was never prohibited.

.04 If an offer to compromise accepted for processing does not contain sufficient information to permit the Service to evaluate whether the offer should be accepted, the Service will request that the taxpayer provide the needed additional information. These requests for information are described in Section 6 below. If the taxpayer does not submit the additional information that the Service has requested within a reasonable time period after such a request, the Service may return the offer to the taxpayer. The Service also may return the offer after it has been accepted for processing if:

(1) The Service determines that the offer was submitted solely to delay collection;

(2) The taxpayer fails to file a return or pay a liability;

(3) The taxpayer files for bankruptcy;

(4) The offer is no longer processable; or

(5) The offer was accepted for processing in error.

When an offer is returned under this Section 5.04, the Service will not refund the application fee submitted with the offer unless the offer was accepted for processing in error.

.05 If a determination is made to return the offer to compromise as described in Sections 5.03 and 5.04, the return of the offer does not constitute a rejection. The taxpayer is not entitled to appeal the matter to Appeals under the provisions of § 301.7122-1(f)(5). If the Service initiates collection action following a return of an offer to compromise, the taxpayer may be able to appeal the collection action under section 6320, section 6330, or under the Collection Appeals Program.

.06 An offer to compromise is considered to be returned on the day the Service mails, or personally delivers, a written letter to the taxpayer informing the taxpayer of the decision to return the offer. An offer returned following acceptance for processing is deemed pending only for the period between the date the offer is accepted for processing and the date the offer is returned. The Service may levy to collect the liability that was the subject of the offer anytime after it returns the offer to the taxpayer.



SECTION 6. CASE BUILDING, INVESTIGATION, AND EVALUATION

.01 Once the Service accepts an offer to compromise for processing, it begins to gather the basic information necessary to begin evaluating the offer. During this initial processing, the Service may contact the taxpayer to secure information or documentation that was incorrect or omitted from the offer documents.

.02 After all of the basic information has been obtained from the taxpayer, the Service evaluates the information and determines whether the taxpayer's offer is acceptable. In the course of evaluating the offer to compromise, the Service may request additional information or documentation from the taxpayer.

.03 The decision whether and when to accept an offer to compromise a liability is within the discretion of the Service. In keeping with Policy Statement P-5-100, an offer will only be accepted if it is determined to be in the best interest of both the taxpayer and the Service. In addition to the criteria discussed in Section 4.02, the Service may take into account public policy and tax administration concerns in determining whether an offer to compromise is acceptable.

.04 For all offers to compromise, except for those based solely on doubt as to liability, the Service verifies the taxpayer's income and assets according to the Service's policies and procedures. Verification allows the Service to determine whether or not the taxpayer can fully pay the liability and, if not, to determine the reasonable collection potential of the liability.

(1) The Service uses a variety of sources to verify the taxpayer's valuation of the taxpayer's property. The Service relies on internal sources, such as its computer databases or other records, public and electronic sources, such as state motor vehicle records and credit bureau reports, and taxpayer supplied documentation.

(2) Section 7122 requires the Service to prescribe and publish guidelines to ensure that taxpayers entering into a compromise have an adequate means to provide for basic living expenses. The amount of basic living expenses will be determined based on an evaluation of the individual facts and circumstances presented by the taxpayer's case. The Service maintains a schedule of national and local allowances to account for the basic living expenses of taxpayers seeking to compromise. To determine whether an offer is adequate, the Service uses these schedules to analyze the income and expenses of the taxpayer to determine the monthly income available to pay the liability. These schedules are available in the Financial Analysis Handbook, IRM 5.15, and on the Service's website at www.irs.gov. The schedules are not applied when doing so would leave the taxpayer without adequate means to provide for basic living expenses.

(3) For purposes of evaluating an offer to compromise, the Service allows expenses only to the extent it determines they are necessary for the health and welfare of the taxpayer or the taxpayer's family or are necessary for the production of income.



SECTION 7. WITHDRAWING AN OFFER TO COMPROMISE

.01 The taxpayer may withdraw an offer to compromise a liability anytime prior to acceptance of the offer. An offer that has been withdrawn is no longer pending and the Service may levy to collect the liability that was the subject of the offer. When an offer is withdrawn the Service will not refund the application fee submitted with the offer.

.02 The taxpayer may withdraw an offer to compromise by delivery of written notification of the withdrawal in person, by mail, or by fax. An offer assigned to Centralized Offer in Compromise Units, however, may not be withdrawn by personal delivery, because documents cannot be personally delivered to these units. A taxpayer may also request withdrawal of an offer telephonically. A notice of intent to withdraw an offer should be directed to the Service office assigned to the case.

(1) If the taxpayer withdraws an offer to compromise by personal delivery, the offer will be considered withdrawn when written notification of the withdrawal is received by the Service.

(2) If the taxpayer withdraws an offer to compromise by mailing written notification of the withdrawal via U.S. certified mail, the offer will be considered withdrawn on the date the Service receives the certified mail.

(3) In all other cases, including withdrawal by non-certified mail, fax, or phone, the offer will be considered withdrawn on the date the Service mails, or personally delivers, a written letter to the taxpayer acknowledging the withdrawal.



SECTION 8. ACCEPTING AN OFFER TO COMPROMISE

.01 An offer to compromise has not been accepted until the Service issues written notification of acceptance to the taxpayer. Acceptance is effective as of the date on the acceptance letter.

.02 Acceptance of an offer to compromise will conclusively settle the liability of the taxpayer specified in the offer. Compromise with one taxpayer does not extinguish the liability of any person not named in the offer who is also liable for the tax to which the offer relates. The Service may take action to collect from any person not named in the offer.



SECTION 9. REJECTING AN OFFER TO COMPROMISE

.01 An offer to compromise has not been rejected until the Service issues written notification of rejection to the taxpayer. Section 7122(d) requires the Service to conduct an independent administrative review before the rejection of an offer to compromise is communicated to the taxpayer. The Service reviews each case to determine if the proposed rejection is reasonable based on the facts and circumstances of the case. Rejection is effective as of the date on the rejection letter. When an offer is rejected the Service will not refund the application fee submitted with the offer.

.02 The taxpayer may appeal the rejection of an offer to compromise to Appeals. The taxpayer must timely file the appeal with the Service office that rejected the offer. An appeal is timely filed if it is delivered to the Service or postmarked within thirty days from the date of the letter of rejection.

.03 Pursuant to section 6331, the Service may not make a levy on the taxpayer's property or rights to property for thirty days following the rejection of an offer to compromise or while an appeal of a rejection is pending.



SECTION 10. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 96-38 is obsoleted.



SECTION 11. EFFECTIVE DATE

This revenue procedure is effective August 21, 2003, the date this revenue procedure was announced by news release, except that the provisions relating to the offer in compromise application fee are not effective for offers submitted prior to November 1, 2003.



SECTION 12. DRAFTING INFORMATION

The principal author of this revenue procedure is Sheara L. Krvaric of the Office of the Associate Chief Counsel (Procedure and Administration), Collection, Bankruptcy & Summonses Division. For further information regarding this revenue procedure contact Branch 2 of Collection, Bankruptcy & Summonses on (202) 622-3620 (not a toll free call).

Rev. Proc. 2003-71, 2003-2 CB 517 , obsoleting Rev. Proc. 96-38, 1996-2 CB 44.

The IRS Commissioner did not abuse his discretion by rejecting a married couple's offer-in-compromise based on economic hardship and exceptional circumstances. The couple's considerable accumulation of wealth and the speculative nature of their medical expenses did not support their argument that medical expenses for the husband's progressive dementia would bankrupt them in about a decade. The couple's ability to pay basic living expenses would not be impaired by significantly greater health care expenses. Further, the legislative history did not support the conclusion that denial of the offer was an abuse of discretion nor was the IRS Appeals officer required to negotiate with the couple on their offer.
C.G. Fargo, CA-9, 2006-1 USTC ¶50,326, 447 F3d 706.

Charles G. and Elizabeth A. Fargo v. Commissioner.

Docket No. 9492-02L . T.C. Memo. 2004-13. Filed January 16, 2004. [Appealable, barring stipulation to the contrary, to CA-9.

Collection Due Process: Hearing: Offer in compromise: Abuse of discretion. --
An IRS Appeals officer's refusal to accept a married couple's offer in compromise regarding tax liabilities arising from a tax shelter investment was sustained. His determination that the taxpayers' resources were sufficient to warrant collection of the entire outstanding liability was not an abuse of discretion; the possibility that they might sustain a substantial economic hardship in the future did not bar a finding that they could pay their taxes. The delay in informing the taxpayers of their pending tax liability was attributable to the deliberate pace at which the TEFRA partnership audit of their tax shelter progressed; the IRS was not compelled to accept their settlement offer because it is generally their tax matters partner's responsibility to keep them informed. Finally, the mere fact that one participant in the same tax shelter was granted an interest abatement did not establish that the Appeals officer acted improperly in denying the offer in compromise.


MEMORANDUM OPINION

HOLMES, Judge: The petitioners, Charles and Elizabeth Fargo, bought two tax shelters 20 years ago. When respondent disallowed their losses and sent them a notice of deficiency in 2000, time and the compounding of interest had nearly quadrupled their total bill. Petitioners paid the tax portion of the deficiencies in full. We consider whether respondent abused his discretion under section 6330 in refusing to compromise the remainder.


Background

Petitioners filed joint returns for the tax years 1983 and 1984. For 1983, they claimed a Schedule E loss of $30,767 attributable to their interest in a partnership named Jackson & Associates (Jackson). For 1984, they claimed Schedule E losses of $2,749 attributable to their interest in Jackson and $28,996 attributable to their interest in another partnership, Smith & Asher Associates (Smith/Asher). Both Jackson and Smith/Asher were partners in other partnerships: Jackson in a partnership called Wilshire West Associates (Wilshire), and Smith/Asher in a partnership called Redwood Associates (Redwood). All these partnerships were subject to the TEFRA provisions of sections Secs. 6221 - 6234.1

These partnerships were all affiliated with a group of tax shelters known as the Swanton Coal Programs, a coal mining venture which produced much more litigation than coal. See, e.g., Smith v. Commissioner [Dec. 45,807], 92 T.C. 1349 (1989); Beagles v. Commissioner [Dec. 55,075(M)], T.C. Memo. 2003-67; Kelley v. Commissioner [Dec. 49,360(M)], T.C. Memo. 1993-495. In Kelley, we concluded that "The formation and operation of the Swanton Coal Programs appear to have as substance little more than a grandiose serving of whimsy", and that they were "nothing more than an elaborate scam to provide highly leveraged deductions for nonexistent expenses." We therefore disallowed the partnership losses at issue, and sustained the Commissioner's imposition of increased interest pursuant to section 6621(c) because the programs were so clearly tax-motivated transactions.

Because the programs used tiered partnerships, however, our decision in Kelley did not automatically resolve the tax liability of partners in Jackson or Smith/Asher, and the Commissioner continued to negotiate with the tax matters partners (TMPs) for these partnerships until finally reaching closing agreements with both of them by mid-1999. After Jackson and Smith/Asher concluded their closing agreements, respondent contacted petitioners in November 1999, sending them a notice of examination that proposed changes to their 1983 and 1984 returns. In March 2000, respondent sent out notices of deficiency. Petitioners paid the entire tax portion of their outstanding 1983 and 1984 deficiencies (amounting to $23,977), but did not pay any of the accrued interest (which had grown to more than $100,000). After assessing the deficiencies, respondent sent petitioners a final notice of intent to levy. Petitioners timely requested a hearing, the focus of which was their offer to compromise the nearly two decades of compound interest for $7,500. The Appeals officer rejected their offer and determined that a levy was appropriate. This action followed. The case was calendared for trial in California, where the Fargos resided when they filed their petition. The parties stipulated the relevant facts, and moved to submit the case for decision without trial under Rule 122.


Discussion

Section 7122(c) directs the Secretary to prescribe guidelines for determining whether to accept or reject specific offers in compromise. Under section 301.7122-1T(b), Temporary Proced. & Admin. Regs., 64 Fed. Reg. 39024 (July 21, 1999),2 there are three grounds for compromise: Doubt as to liability, doubt as to collectibility, and promotion of effective tax administration. Petitioners argue that their compromise offer met two of the temporary regulations' separate standards for acceptance "in furtherance of effective tax administration" --collection of the full amount would cause them economic hardship, see sec. 301.7122-1T(b)(4)(i), Temporary Proced. & Admin. Regs., supra; and, even if it did not, would because of "exceptional circumstances" be "detrimental to voluntary compliance by taxpayers" by creating doubt as to the fair administration of the tax laws, see sec. 301.7122-1T(4)(ii), Temporary Proced. & Admin. Regs., supra.

Respondent rejected both arguments. He concluded that petitioners could fully satisfy both their tax debt and their foreseeable expenses without economic hardship. He also concluded that they had failed to show "exceptional circumstances" sufficient to justify accepting their compromise.

We examine each issue in turn, mindful that our review under section 6330 is for abuse of discretion. See Davis v. Commissioner [Dec. 53,969], 115 T.C. 35, 39 (2000). This standard does not ask us to decide whether in our own opinion the offer in compromise should have been accepted, but whether the Commissioner exercised his "discretion arbitrarily, capriciously, or without sound basis in fact or law." Woodral v. Commissioner [Dec. 53,206], 112 T.C. 19, 23 (1999).



A. Hardship
Petitioners suggest that although they currently enjoy fairly substantial means, their economic future is tainted by a diagnosis that petitioner Charles Fargo suffers from a progressive neurological condition that may eventually require round-the-clock nursing care. They claim that such care is so expensive (almost $90,000/year, by their estimate) that it would cause them to wholly consume their liquid assets in 10 years. They argue that respondent should have accepted their offer as a viable alternative to a levy because of this foreseeable economic hardship.

As we already noted, we look to respondent's determination for anything that runs counter to established law or suggests the lack of a "sound basis in fact or law." In that light, we decline to second-guess his determination that petitioners' resources are sufficient to warrant collection of the entire outstanding liability. The record compiled by respondent indicates that petitioners possess substantial wealth --over a million dollars in total assets (if equity in real estate is counted) and a large income even in their retirement. While petitioners certainly present a legitimate view of their possible future needs, we do not find that the record shows respondent to have abused his discretion in concluding that petitioners can pay their debt without suffering substantial economic hardship.



B. Exceptional Circumstances
Petitioners also renew here the arguments in favor of a finding of "exceptional circumstances" that they made to respondent. First, they contend the IRS had no justification for its extraordinary delay in assessing their unpaid tax liability after we decided Kelley v. Commissioner, supra. Quoting extensively from legislative history, petitioners argue that the delay between the adjudication of the underlying tax issues in 1993 and the first contact they received from the IRS in 1999 falls within the class of situations contemplated by Congress when it described the offer in compromise program as a method for resolving "longstanding cases * * * which have accumulated as a result of delay in determining the taxpayer's liability." H. Conf. Rept. 105-599, at 289 (1998), 1998-3 C.B. 747, 1043.

Petitioners suggest that the IRS was at the very least complicit, and perhaps negligent or malicious, in allowing their original tax savings of $23,977 to balloon into a total liability of more than $127,000. They allege that this IRS conduct should have compelled respondent to accept their offer in compromise.

Respondent, while acknowledging the length of time that passed between our decision in Kelley v. Commissioner [Dec. 49,360(M)], T.C. Memo. 1993-495, and his contacting petitioners, contends that it was due not to any improprieties by the IRS, but rather to the deliberate pace at which TEFRA partnership audits may progress. The partnership interests which petitioners held were not in the partnerships directly at issue in Kelley, but rather in partnerships which themselves were partners in the partnerships that Kelley analyzed. This tiered structure meant that under TEFRA, even after Kelley, respondent had to negotiate a closing agreement with the TMPs of the partnerships in which petitioners had an interest before starting collection activity at their level.

The Appeals officer determined that the delay in petitioners' learning of their snowballing liability is a matter they should address with the TMPs of their partnerships. We agree. TEFRA contemplates that it is generally a TMP's responsibility to keep his partners informed.3 Sec. 6233(g); sec. 301.6223(g)-1T, Temporary Proced. & Admin. Regs., 52 Fed Reg. 6785 (Mar. 5, 1987). We decline to decide that the failure of the IRS to contact petitioners sooner is reason to compel respondent to accept a settlement of approximately 7 percent of petitioners' interest liability.

We do agree with petitioners that there is something disconcerting about their not receiving notice of the ramifications for them of the Swanton coal litigation until 1999. Indeed, respondent's determination notes that petitioners may have received no correspondence at all from their TMPs since 1991. We believe however, that if there is a remedy, it does not lie in denying the Government the interest to which it is legally entitled.

Petitioners also call our attention to the decision in Beagles v. Commissioner [Dec. 55,075(M)], T.C. Memo. 2003-67, which indicates that the Commissioner abated over 6 years' worth of interest arising out of a similar liability for the taxpayers in that case, which also arose from the Swanton Coal Programs. Petitioners argue that this makes it inequitable for respondent to have denied their offer in compromise, which sought only similar relief.

We are unpersuaded. The Commissioner's decision to grant interest abatement to one Swanton participant would hardly suffice to show that he abused his discretion in denying another's request for an offer in compromise. Different factors are relevant to each form of relief, and of course, different taxpayers face different circumstances: in Beagles, the Commissioner may have abated interest at least in part because the taxpayer became terminally ill during the collection process. Id.

In any event, review for abuse of discretion allows different decisions even in similar cases, so long as none represent a clear error in judgment by the decisionmaker. Rasbury v. IRS [94-2 USTC ¶50,319], 24 F.3d 159, 168 (11th Cir. 1994).

Decision will be entered for respondent.

1 Section references are to the Internal Revenue Code of 1986, as amended. Secs. 6221 to 6234 were added by the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982, Pub. L. 97-248, sec. 402(a) 96 Stat. 648, and provide for the determination of partnership items at the partnership, rather than at the individual partner, level. The Commissioner is generally unable to assess a deficiency relating to a TEFRA partnership item until after the completion of partnership-level proceedings. See generally Katz v. Commissioner [Dec. 54,207], 116 T.C. 5, 8 (2001), revd. on other grounds [2003-2 USTC ¶50,557] 335 F.3d 1121 (10th Cir. 2003).

2 As petitioners submitted their offer in compromise after July 21, 1999, and before July 18, 2002, it is governed by the temporary regulations that were then in force. (The portions relevant to this case survived in substantially similar form in the final regulations at sec. 301.7122-1(b), Proced. & Admin. Regs.)

3 One part of respondent's determination regarding the long delay between Kelley and assessment does seem mistaken. The Appeals officer found that "no link had been established" between the Swanton Coal Programs and petitioners' tax liabilities. This statement is fundamentally in error if it was intended to mean that Kelley did not at least indirectly affect petitioners' tax liabilities. Nevertheless, it appears to be dictum. Regardless of the interrelation of the partnerships involved in the Swanton Programs, respondent is correct that legal responsibility for more promptly notifying petitioners and trying to resolve their partnerships' tax issues lay ultimately with their TMPs.

Followed.

The IRS was not arbitrary and capricious when it rejected an offer in compromise made with respect to a deficiency arising from the taxpayers' participation in a Hoyt partnership. The IRS properly followed its guidelines when it determined that the taxpayers' offer did not qualify as an offer to promote effective tax administration because the taxpayers did not have sufficient assets to pay the full amount of their liability; and that the offer was too low, in relation to the deficiency and to the taxpayers' assets, to qualify as an offer due to doubts as to collectibility with special circumstances. The taxpayers' case was not a "longstanding" case that was entitled to special treatment with respect to interest and penalties; C.G. Fargo, CA-9, 2006-1 USTC ¶50,326, 447 F3d 706, followed. The IRS Appeals Officer who rejected the offer did not fail to consider the taxpayers' alleged unique circumstances; fail to balance efficient collection against the use of the least intrusive means possible; or fail to consider their request to abate interest. She was not required to discuss her decision with the taxpayers before she issued her notice of determination. The taxpayers failed to support their claim that they would suffer severe economic hardship if they had to pay more than the offered amount. Their claim that they were the victims of fraud did not obligate the IRS to accept their offer based on public policy, especially since acceptance would tend to undermine voluntary tax compliance. Finally, the taxpayers' claim that their assessment was untimely was frivolous.

R.D. Catlow, 93 TCM 946, Dec. 56,850(M), TC Memo. 2007-47.

The IRS did not abuse its discretion when it rejected a delinquent corporation's proposed offer in compromise. An IRS agent properly considered the taxpayer's other tax liabilities in assessing its ability to pay its federal liabilities, and she did not abuse her discretion when she concluded that the taxpayer did not demonstrate the ability to make the payments proposed in the offer, despite its improving financial condition.

Action Employment Resources, Inc., CA-9, 2006-1 USTC ¶50,130, 158 FedAppx 67.

The trial court properly determined that the IRS did not abuse its discretion when it attempted to collect unpaid employment taxes and penalties owed by an individual through the levy process. Although the taxpayer filed a formal offer in compromise to settle his tax liability, he did not supply the financial information that the IRS requested and believed necessary to evaluate the offer in compromise. The IRS was also justified in requesting financial information about the taxpayer's spouse since it appeared that the taxpayer may have transferred some of his assets to his spouse and since the IRS needed to verify each spouse's responsibility for the couple's living expenses. Further, the IRS's failure to negotiate and make a counteroffer during consideration of the compromise offer did not violate the taxpayer's due process rights since the taxpayer did not provide requested financial information.

R.E. Olsen, CA-1, 2005-2 USTC ¶50,637, 414 F3d 144.

An individual could not overcome the government's motion for summary judgment on his claim that an IRS Appeals officer was not aware of the taxpayer's "separate property" contention with respect to levied property. The officer's decision to proceed with collection was based on the taxpayer's failure to make an offer in compromise. That the Appeals officer insisted on the filing of returns for the tax years at issue as a condition for processing and considering an offer in compromise did not create a genuine issue of material fact as to whether the IRS abused its discretion in issuing notice of determination. The taxpayer was charged with the knowledge that the officer's oral representations were not binding, and that a written offer was necessary.

A. Richter, DC Calif., 2002-2 USTC ¶50,607.

The IRS was entitled to reject married taxpayers' offer in compromise of their tax liability because under Code Sec. 7122 it has discretion as to whether it will accept such an offer.

A.C. Addington, DC W.Va., 99-1 USTC ¶50,441.

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.

A taxpayer and his late wife's estate failed to establish that the IRS abused its discretion by refusing to grant them additional time to submit an offer in compromise (OIC) because the Commissioner is not required to wait a certain length of time before proceeding with a levy. The IRS also did not abuse its discretion in proceeding with a levy because the taxpayers repeatedly delayed the proceedings and failed to remit the necessary financial information required for an installment agreement or OIC.

M.A. Gazi, 94 TCM 474, Dec. 57,176(M), TC Memo. 2007-342.

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.

The IRS did not abuse its discretion when it rejected an elderly couple's compromise offer that amounted to less than half of their estimated tax liability. The IRS was not required to compromise the couple's tax liability in order to promote effective tax administration based on economic hardship or public policy or equity grounds because the taxpayers were able to pay more than the amount that they offered. The IRS determined that the taxpayers had sufficient equity in their assets to pay the tax amounts owed and still meet their necessary living expenses for the foreseeable future. Further, it did not abuse its discretion in disregarding the couple's speculative future medical expenses. In addition, the IRS was not required to accept the offer based on the taxpayers' claim that they were the victims of fraud because the couple's situation was typical of many tax shelter participants who claimed deductions, obtained tax advantages and were now required to pay their tax liability. Thus, the IRS's determination to reject the offer-in-compromise was not arbitrary, capricious, or without a sound basis in fact or law, and it was not abusive or unfair to the taxpayers.

D. Clayton, 92 TCM 222, Dec. 56,612(M), TC Memo. 2006-188.

An IRS Appeals officer's refusal to accept a married couple's offer in compromise regarding tax liabilities arising from a tax shelter investment was sustained. His determination that the taxpayers' resources were sufficient to warrant collection of the entire outstanding liability was not an abuse of discretion. The possibility that they might sustain a substantial economic hardship in the future did not bar a finding that they could pay their taxes. The delay in informing the taxpayers of their pending tax liability was attributable to the deliberate pace at which the TEFRA partnership audit of their tax shelter progressed. The IRS was not compelled to accept their settlement offer because it is generally their tax matters partner's responsibility to keep them informed. Finally, the mere fact that one participant in the same tax shelter was granted an interest abatement did not establish that the Appeals officer acted improperly in denying this offer in compromise.

C.G. Fargo, 87 TCM 815 ,Dec. 55,514(M), TC Memo. 2004-13.

An IRS Appeals officer properly rejected an individual's offer in compromise for $100 to settle his unpaid tax liabilities in three years. The taxpayer offered no evidence to indicate that a rejection of his offer was an abuse of discretion. The Appeals officer properly reviewed the financial records of the taxpayer and his mother, whom the taxpayer supported. Moreover, the Appeals officer's refusal to refer the taxpayer's offer to IRS collection personnel for further evaluation did not constitute an abuse of discretion. As a result, the Tax Court upheld the IRS's Collection Due Process determination.

J.L. Tillman, 87 TCM 806,Dec. 55,509(M), TC Memo. 2004-8.

In consolidated cases, the IRS did not abuse its discretion in rejecting offers in compromise submitted by individuals who challenged their underlying tax liabilities as transferees of a corporation for its tax liability. Each taxpayer previously had entered into a stipulated decision agreeing to transferee liability and there was no doubt as to the taxpayers' liabilities within the meaning of the applicable regulations or otherwise. Thus, the IRS reasonably rejected the offers in compromise on grounds that the transferee liabilities had been determined in the transferee liability cases and that the taxpayers did not comply with filing requirements.

D.L. Oyer, 85 TCM 1510, Dec. 55,193(M), TC Memo. 2003-178.

Individual taxpayers were not entitled to loss deductions on account of their book tax shelters notwithstanding an IRS policy statement that, according to the taxpayers, gave them the right to settle the book shelter issue by being allowed deductions to the extent of their cash investment. The policy statement issue was not timely raised. Furthermore, the policy statement did not grant settlement rights to taxpayers but rather described procedures for arriving at such settlements.

R. Helstoski, 60 TCM 233, Dec. 46,748(M), TC Memo. 1990-382.

The IRS has identified 43 frivolous positions that have been deemed frivolous by courts or have no basis for validity in existing law. These positions are determined to be frivolous for purposes of the Code Sec. 6702(a) penalty for filing frivolous tax returns, and the Code Sec. 6702(b) penalty for filing specified frivolous submissions, which include applications for offers in compromise. Included in the list are four new positions that relate to a misinterpretation of the Ninth Amendment regarding objections to military spending, erroneous claims that taxes are owed only by persons with a fiduciary relationship to the U.S. or IRS, a nonexistent "Mariner's Tax Deduction," or something similar, related to invalid deductions for meals and misuse or excessive use of the credit for fuels under Code Sec. 6421.

Notice 2008-14, I.R.B. 2008-4, 310; modifying and superseding Notice 2007-30, I.R.B. 2007-14, 883.

IRS News Release, IR-2008-8, January 14, 2008.

The IRS has announced that a revised taxpayer application for an offer in compromise (OIC), the Form 656 package, is now available. The new form reflects procedural changes to the OIC program made by the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222). The changes to the Form 656 package include new payment terms and offer submission rules, a processability checklist, a matrix to assist taxpayers in determining the number of forms and payments that must be submitted to the IRS, a checklist of items and documents that must be completed prior to submitting an OIC, and a new payment voucher to be used to remit required partial payments to the IRS.

IRS News Release, IR-2007-50, March 5, 2007.

IRS Fact Sheet FS-2007-16, March 5, 2007.

The IRS has issued guidance outlining the protections in place for the new private debt collection program in connection with administrative review. If the taxpayer proposes an installment agreement to the private collection agency (PCA) and the IRS rejects the proposed installment agreement, the taxpayer may appeal the rejection to the IRS. If the IRS assigns a PCA to monitor an installment agreement and the PCA determines the taxpayer is in default, the taxpayer may appeal to the IRS if the installment agreement is terminated. In both situations, the taxpayer must first appeal to the IRS office supervising the PCA's day-to-day work, but if not satisfied the taxpayer may continue the appeal to the IRS Office of Appeals, pursuant to the IRS review procedures for installment agreements and compromises.

Announcement 2006-63, I.R.B. 2006-37, 445.

The IRS issued information and guidance on the major changes made to the offer in compromise program by the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222) which tightened the rules for lump-sum and periodic payment offers received by the IRS on or after July 16, 2006. Taxpayers submitting requests for lump-sum OICs must include a payment of 20 percent of the amount offered. A lump-sum OIC is an offer of payments made in five or fewer installments. Taxpayers submitting requests for periodic-payment OICs must include the first proposed installment payment with their application and continue making payments under the terms proposed while the offer is being evaluated. The IRS will treat the payments as payments of tax, rather than refundable deposits under Code Sec. 7809(b) or Reg. §301.7122-1(h). Unless a waiver applies, failure to pay the 20 percent on a lump-sum offer, or the first installment payment on a periodic payment offer may result in the IRS returning the offer to the taxpayer as nonprocessable. Taxpayers qualifying as low-income or filing an offer based solely on doubt as to liability can receive a waiver of the new partial payment requirements. The IRS will deem an OIC accepted that is not withdrawn, returned or rejected within 24 months after receipt of the offer. When submitting Form 656, taxpayers must include user fee of $150 unless they qualify for a waiver. Offers are submitted using Form 656, Offers in Compromise. Taxpayers may continue to use the 2004 revision of the form until the new version, revised to reflect the new law, is available.

Notice 2006-68, I.R.B. 2006-31, 105.

IRS News Release, IR-2006-106, July 11, 2006.

IRS Fact Sheet FS-2006-22, July 11, 2006.

A new check-the-box disclosure authorization for the appointment of a third party to discuss and obtain information to facilitate the initial processing of an offer in compromise was added July 2004 to Form 656. This authorization is limited to this specific purpose and does not authorize the designated party to represent the taxpayer before the IRS or during a Collection Due Process hearing.

Announcement 2005-6, I.R.B. 2005-4, 377.

The IRS is warning taxpayers to beware of tax practitioners who encourage the use of an offer in compromise as a way to settle tax claims for "pennies on the dollar." The IRS's warning targets the actions of "unscrupulous promoters" who charge excessive fees when there is no chance that the taxpayer will qualify for the offer in compromise. Although the IRS has the authority to settle tax claims for less than their full amount, an offer in compromise may be considered only after other options, such as an installment agreement, are considered.

IRS News Release, IR-2004-130, October 25, 2004.

A revised taxpayer application for an offer in compromise (OIC), the Form 656 package, is now available. The revised form provides a signature block for paid preparers and also includes a Form 656-A, Income Certification for OIC Application Fee, and a worksheet to help taxpayers determine if they qualify for the income exception to $150 application fee. Other features of the new package include a checklist to determine eligibility for an OIC, an OIC process step-by-step guide, a third-party designee section and a summary checklist. The package can be obtained from the IRS by calling 1-800-829-3676 or by going to the IRS website "www.irs.gov.".

IRS News Release, IR-2004-129, October 25, 2004.

The IRS has issued a consumer alert advising taxpayers to beware of promoters' claims that tax debts can be settled for "pennies on the dollar" through the IRS Offer in Compromise Program. According to the IRS, some promoters are inappropriately advising indebted taxpayers to apply for an offer in compromise before exhausting other payment options, such as monthly installment agreements.

IRS News Release, IR-2004-17, February 3, 2004.

Beginning on November 1, 2003, the IRS will charge, with certain exceptions, a $150 application fee for the processing of offers in compromise (OICs). Individuals whose monthly income falls at or below levels based on the Department of Health and Human Services guidelines, and taxpayers that file OICs based solely on doubt as to liability, will be exempt from the fee. Individuals claiming the poverty guideline exception must certify their eligibility using Form 656-A, Offer in Compromise Application Fee Instructions and certification. To submit an OIC, taxpayers are to use the May 2001 version of Form 656, Offer in Compromise. The application fee for OICs that do not qualify for an exception must be submitted using a check or money order payable to the United States Treasury.

IRS News Release, IR-2003-124, October 23, 2003.

Chief Counsel concluded that a Code Sec. 7122 compromise would not legally bind a minor in a compromise agreement with the IRS. A minor child may repudiate, avoid or disaffirm a contract under state laws; thus, Chief Counsel advised against the IRS entering into compromise agreements with minors. Moreover, status as the legal guardian of a minor's property does not include the capacity to compromise the minor's tax liability.

CCA Letter Ruling 200220026, March 28, 2002.

Chief Counsel provided background information regarding Code Sec. 7122 and its legislative history as they relate to Chief Counsel Notice CC-2001-036. The notice set forth procedures to be followed by Associate Chief Counsel (SB/SE) offices when issuing the statutorily required opinion in offer in compromise cases. It also clarified procedures for the review of offers based on doubt as to collectibility and/or liability. Further, the notice added procedures and standards for the review of offers based upon the promotion of effective tax administration.

CCA Letter Ruling 200131029, July 2, 2001.

Chief Counsel concluded that the IRS need not require that individual offers in compromise submitted by married taxpayers specify that the offers were made in conjunction with each other in order to protect the collectability of the couple's joint and separate liabilities. Moreover, the offers did not have to specify that a failure to pay the entire amount of either offers would result in a default of both offers.

CCA Letter Ruling 200051043, October 26, 2000.

No comments: