Offer in Compromise - tax lien issue

Commissioner of Internal Revenue, Respondent.
U.S. Court of Appeals, 9th Circuit; 07-73619, March 26, 2009.

Unpublished opinion affirming an unreported Tax Court decision.

[ Code Sec. 7122]


The Tax Court properly upheld the IRS's determination of an individual's federal income tax liability. The notice of federal tax lien was not prematurely filed because the IRS had considered the individual's offer in compromise and gave him ample notice before issuing the lien. Furthermore, the individual's charitable contributions were not "necessary expenses" with respect to his proposed offer in compromise.

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT. NOT FOR PUBLICATION. No. 07-73619. Tax Ct. No. 10251-06L. Appeal from a Decision of the United States Tax Court. Submitted March 18, 2009 ** .


MEMORANDUM *


Gerry E. Freeman appeals pro se from the order of the United States Tax Court, following a bench trial, upholding a determination of federal income taxes owed for tax year 2004. We have jurisdiction under 26 U.S.C. § 7482(a). We review de novo the Tax Court's legal conclusions and for clear error its findings of fact. Charlotte's Office Boutique v. Comm'r, 425 F.3d 1203, 1211 (9th Cir. 2005). We affirm.

Freeman contends that the notice of a federal tax lien for his 2004 tax obligation of $10,522.35 had been prematurely filed because the Internal Revenue Service (IRS) had failed to consider his offer in compromise to settle his 2003 and 2004 tax obligations for $2905. We disagree. The record supports the Tax Court's findings that the IRS considered Freeman's offer in compromise. See 26 U.S.C. § 7122 (establishing basic guidelines for officers to consider while determining whether an offer in compromise should be accepted).

The record also indicates that the IRS gave Freeman ample notice before it issued the tax lien. See Hansen v. United States, 7 F.3d 137, 138 (9th Cir. 1993) (per curiam).

Freeman also contends that the Tax Court erred by rejecting his claim that his tax liabilities should be offset by necessary expenses consisting of his charitable donations of $471.75 per month, which he considers essential to his health and welfare. While 26 U.S.C. § 170 allows deductions for charitable contributions made to qualified organizations, Davis v. United States, 861 F.2d 558, 561 (9th Cir. 1988), the Tax Court did not err by concluding that these charitable contributions do not meet the "necessary expense" test during an offer in compromise under the Internal Revenue Manual. See also In re Tuss, 360 B.R. 684, 698 (Bankr. D. Mont. 2007)(listing approved necessary expenses).

Accordingly, the Tax Court is

AFFIRMED.

** The panel unanimously finds this case suitable for decision withoutoral argument. See Fed. R. App. P. 34(a)(2).

* This disposition is not appropriate for publication and is not precedentexcept as provided by 9th Cir. R. 36-3.

Acceptance of offer. --Compromises: Acceptance of offer

An IRS Appeals officer did not abuse her discretion when she refused a corporation's offer-in-compromise regarding its unpaid employment taxes. Her rejection of the offer as nonprocessable and inadequate was in accordance with the Internal Revenue Code and Treasury regulations. The corporation was not current on the payment of its estimated tax for the prior two periods. Its failure to timely pay taxes owed was a reasonable basis for the Appeals officer to reject its offer-in-compromise relating to other unpaid taxes.

Christopher Cross, Inc., CA-5, 2006-2 USTC ¶50,524, 461 F3d 610.

The IRS did not abuse its discretion by refusing to accept a couple's offer in compromise on an alternative minimum tax liability they incurred for exercising incentive stock options.

R.J. Speltz, CA-8, 2006-2 USTC ¶50,403.

An Appeals officer's determination to reject an individual's offer in compromise and sustain a levy to collect trust fund recovery penalties was not an abuse of discretion. The record established that the determination complied with all the requirements of the Internal Revenue Code and the Treasury Regulations. Moreover, the Appeals officer sustained the levy only after a complete review of the individual's financial information and after determining that the individual's offer in compromise was insufficient. The taxpayer conceded that IRS was not required to negotiate an acceptable offer in compromise.

R.E. Marshall, DC Fla., 2007-2 USTC ¶50,802.

The IRS was not liable for a breach of contract claim with respect to a settlement agreement because the individual bringing suit failed to show the existence of an enforceable contract to settle his outstanding tax liabilities. The IRS agent's written reply to the individual's offer did not constitute a valid offer or counteroffer that could be accepted by the individual to create a binding contract with the IRS. Moreover, the IRS agent was not authorized to enter into any such contract with the individual.

D.W. Jordan, FedCl, 2007-2 USTC ¶50,601.

The government was not estopped from collecting an individual's unpaid taxes merely because he alleged that an IRS employee advised or enticed him to file offers-in-compromise relating to his tax liabilities.

J.C. Ryals, DC Fla., 2006-1 USTC ¶50,293.

The IRS could not be compelled to accept an offer in compromise submitted by a company after the commencement of a bankruptcy proceeding but before the filing of a proposed Chapter 11 plan. Rev. Proc. 2003-71, 2003-2 CB 517, which directs IRS personnel to treat any offer in compromise as nonprocessable if the taxpayer has a bankruptcy case pending, does not violate a clear nondiscretionary duty on the part of the IRS.

1900 M Restaurant Associates, Inc., BC-DC D.C., 2005-1 USTC ¶50,313, 319 BR 302.

The IRS did not abuse its discretion in refusing to accept an individual's multiple offers to compromise her liability for the trust fund recovery penalty. The taxpayer's first offer was for significantly less than her collection potential, and she failed to explain why the IRS's two counter offers would pose a hardship. In calculating its counter offers, the IRS took into consideration the taxpayer's age and numerous medical problems. The IRS also offered to forgo collection until the taxpayer's financial situation improved, or the collection action expired. The taxpayer made the second offer at a Collection Due Process (CDP) hearing, arguing that there was doubt as to her liability for the penalty.

A. Siquieros, DC Tex., 2005-1 USTC ¶50,244. Aff'd, per curiam, CA-5 (unpublished opinion), 2005-1 USTC ¶50,245, 124 FedAppx 279.

A taxpayer was not entitled to monetary damages resulting from the IRS's referral of a collection action against the taxpayer to the Department of Justice (DOJ) while one or more offers in compromise were allegedly pending. The IRS's referral of the taxpayer's case to the DOJ predated temporary regulations precluding any levy to collect outstanding tax debts while an offer in compromise for those tax debts is pending and final regulations, Reg. §301.7122-1(g)(6), prohibiting the referral of cases to the DOJ for the collection of unpaid taxes through judicial proceedings while an offer in compromise is pending. The IRS's failure to include provisions preventing referral of such cases to the DOJ in the temporary regulations was not actionable under the Taxpayer Bill of Rights ( P.L. 104-168), as codified under Code Sec. 7433(a). There was also no proof that there were any offers in compromise pending when the taxpayer's case was referred to the DOJ. At least six offers in compromise submitted by the taxpayer were rejected or returned as "unprocessable." Documents evidencing the IRS's acceptance of an offer in compromise submitted by the taxpayer's accountant on behalf of the taxpayer were forgeries.

J.R. Evseroff, DC N.Y., 2005-1 USTC ¶50,112.

Married debtors' tender of a check to the government did not constitute an offer in compromise that would have discharged their tax liability. The government and the debtors agreed that an offer to compromise the tax liability of the debtors was never accepted in writing by an authorized official. Moreover, a certificate of assessment reflected that the debtors' offer in compromise was rejected.

L.M. Smallwood, BC-DC Ark., 2002-1 USTC ¶50,166.

A proposed tax levy and collection action against an individual was not barred because the government failed to entertain a settlement or other compromise of her liability. The taxpayer failed to assert any Internal Revenue Code provision that establishes the government's legal obligation to compromise its action against her. The government has discretion to accept or reject any offer in compromise of a tax liability but is not legally obligated to even consider such an offer.

D.G. Asbury, DC Pa., 2002-1 USTC ¶50,117.

A Cayman Islands corporation's suit for refund of federal withholding taxes was dismissed, with prejudice, in accordance with a closing agreement with the government. A letter sent by the taxpayer that purported to modify its settlement offer to include an offer-in-compromise with regard to tax years not at issue was ineffective. The taxpayer presented no evidence that the proper parties received the letter before the government accepted its offer.

Inverworld, Ltd., DC D.C., 2001-1 USTC ¶50,350. Aff'd, per curiam, CA-D.C. (unpublished opinion), 2002-1 USTC ¶50,113, 22 FedAppx 5.

The co-owner of property foreclosed by a federal tax lien failed to show that he and the government had reached a settlement to release the property from the lien. There was no evidence that the government accepted his offer in compromise.

E.F. Ressler, DC Ala., 98-1 USTC ¶50,417.

Correspondence between a mutual insurance corporation and the government did not reflect an intention that the filing of a stipulation of dismissal would be a condition precedent to the completion of settlement negotiations. Because the parties entered into a valid settlement agreement, the government's acceptance letter merely stated that a stipulation of dismissal would "reflect" the agreement which had already been reached. As such, a stipulation was not essential to the validity of the parties' settlement agreement.

Principal Mutual Life Insurance Co., FedCl, 93-2 USTC ¶50,480, 29 FedCl 157. Aff'd on another issue, CA- FC, 95-1 USTC ¶50,160, 50 F3d 1021.

The IRS was not estopped from denying that it settled tax liabilities, even though it retained money offered as a settlement, because the procedures set forth for settling disputes were not followed. Since the statutory requirements were not followed, there could be no settlement, and thus no estoppel.

W.F. Brooks, DC W.Va., 86-2 USTC ¶9548.

A taxpayer's offer of compromise that contained a waiver of limitations was rejected by the IRS, and, therefore, the IRS could not assert that it accepted the portion of the offer containing the waiver.

G. Hamm, DC Ky., 79-2 USTC ¶9731.

The Commissioner effectively accepted an offer to compromise a refund claim when he mailed the taxpayer's attorney a letter accepting the offer and informing the taxpayer that the refund settlement would be credited against the unpaid tax liability of a later tax year. The court rejected the taxpayer's argument that the IRS letter constituted a counteroffer rather than an acceptance because it materially altered the terms of the offer.

J.P. Kehoe, DC N.Y., 79-2 USTC ¶9524.

There was no acceptance of a compromise settlement, which was negotiated during the trial, where the government's acceptance was not timely and unequivocal and where the taxpayer's counsel decided not to accept the settlement offer. Therefore, the taxpayer was not bound by the settlement agreement.

B.R. Kurio, DC Tex., 71-1 USTC ¶9112.

The IRS did not abuse its discretion when it refused married taxpayers' offer in compromise even though their tax liability arose from the application of the alternative minimum tax (AMT) as a result of the exercise of an incentive stock option on stock which then fell precipitously in value. The taxpayers had the ability to meet their obligation in full (albeit with a substantial reduction in their standard of living). The fact that their tax bill was much higher than the value of what they ended up receiving was not a reason for the IRS to accept the taxpayers' offer. The IRS was precluded from accepting an offer in compromise that would undermine compliance with the tax laws. Whether or not AMT is unfair is a question for Congress, not the IRS.

R.J. Speltz, 124 TC 165, Dec. 55,961.

Disallowance of tithes as allowable expenses in determining a taxpayer's ability to pay outstanding tax liabilities for purposes of an offer in compromise was not an abuse of an IRS Appeals officer's discretion even though the taxpayer argued that tithes were required as a condition of employment. At the Appeals hearing, the taxpayers were given the opportunity to substantiate that the husband was a minister but they failed to do so and the court was not persuaded that tithing was a condition of employment.

B.M. Pixley, 123 TC 269, Dec. 55,744.

An IRS Appeals officer did not abuse her discretion in rejecting an individual's offers-in-compromise where those offers did not provide for an immediate payment equal to the available cash value of the taxpayer's life insurance policies. The court found no authority requiring the IRS to accept less than the full value on the grounds suggested by the taxpayer, that he and his wife are "in their older years."

L.D. McClanahan, 95 TCM 1625, Dec. 57,478(M), TC Memo. 2008-161.

The IRS did not abuse its discretion when it rejected multiple offers-in-compromise submitted by a married couple; therefore, a proposed levy and filing of a federal tax lien were appropriate. The offers contained a number of defects with regard to the taxpayers' reasonable collection potential, which was largely based on the amount they could realize from the equity in their home. The IRS found that their initial offer used outdated appraisals for the home and questioned the validity of a second mortgage on the property held by husband's father, which was recorded shortly before the filing of the notice of federal tax lien. The taxpayers' second offer, based on a recommendation by an IRS Appeals officer, was also insufficient. The IRS's Engineering Group had found that the market value of the taxpayers' home could be 30 percent to 40 percent higher than that stated in the second offer.

W.G. Schwartz, 95 TCM 1427, Dec. 57,424(M), TC Memo. 2008-117.

The Appeals office did not abuse its discretion when it rejected an individual's offer-in-compromise (OIC) and sustained the IRS's notice of federal tax lien. The Appeals officer properly concluded that the offer was inadequate because it failed to include the value of an interest in real property that was awarded to her as part of her divorce settlement. The taxpayer failed to provide an adequate explanation as to why the property interest was not included when it constituted a dissipated asset that should have been included in her OIC.

J.L. Ashlock, 95 TCM 1220, Dec. 57,363(M), TC Memo. 2008-58.

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.

An IRS Appeals officer abused her discretion by including the full amount of an individual's dissipated assets in his net realizable equity (NRE) during her evaluation of his offer-in-compromise. His NRE should not have included amounts paid for: attorney's fees incurred in the representation in his tax case; attorney's fees incurred in a civil lawsuit he filed for unpaid wages; an estimated tax payment made for one of the tax years at issue; and a lump-sum payment of delinquent child support.

D.L. Samuel, 94 TCM 392, Dec. 57,141(M), TC Memo. 2007-312.

The IRS did not abuse its discretion in rejecting an individual's offer-in-compromise (OIC). The OIC was for less than one-third of his total tax liability and the individual's assets and income were valued at more than the full amount of his assessed tax liability. The individual, while lacking sufficient income to fund an installment agreement, held a one-half interest in two parcels of real estate. The value of the individual's interest in the real estate exceeded the amount of his tax liability. The individual's argument that he owed his brother, who owned the other half interest in the real estate, more than the value of his interest, was rejected because it was unsupported by evidence of such liability.

W.A. Mootz, 94 TCM 362, Dec. 57,131(M), TC Memo. 2007-303.

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.

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.

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.

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 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, public policy or equity grounds because the taxpayers had sufficient assets to pay the tax 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.

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's refusal of an individual's offer to compromise her alternative minimum tax (AMT) liability, which arose from the exercise of incentive stock options (ISO), was not an abuse of discretion. The fact that the taxpayer's AMT liability was much higher than the value of income she actually received, was not a reason for the IRS to accept her offer. Any inequity in the application of the AMT in situations such as the taxpayer's is a question for Congress to resolve and not the IRS.

C. Wai, 92 TCM 181, Dec. 56,602(M), TC Memo. 2006-179.

An IRS Appeals officer did not abuse her discretion in rejecting an taxpayer's offer-in-compromise. The Appeals officer's rejection of the offer-in-compromise was justified because the disclosure that the taxpayer had incurred additional tax liability without making payment suggested that the taxpayer preferred consumption over meeting his legal obligations. The Appeals officer had also agreed to allow a collection alternative if the taxpayer met certain conditions, but the taxpayer did not agree to those conditions. Finally, collection of the full tax liability would not have caused the taxpayer and his family financial hardship. Delaying his retirement plans was not considered a hardship.

J.G. Dostal, 90 TCM 496, Dec. 56,194(M), TC Memo. 2005-264.

An IRS Appeals officer's determination to proceed with collection of an individual's unpaid tax liability was not an abuse of discretion. Although the taxpayer's allegation of economic hardship was worthy of review, the taxpayer's substantial equity in his home, against which he could borrow, weighed against a finding of economic hardship. Accordingly, the IRS did not abuse its discretion by rejecting the taxpayer's offer to compromise.

K. Hawkins,, 89 TCM 1075, Dec. 55,999(M), TC Memo. 2005-88.

A settlement agreement between an individual and the IRS did not allow the taxpayer to claim business losses related to his wife's furniture business in a specific tax year. The IRS disallowed the losses, categorizing the expenses as start-up costs required to be capitalized. The IRS and the taxpayer reached a settlement for that year that included, in part, the disallowance of the business loss. The taxpayer argued, however, that the prior to signing the settlement an agreement was reached to allow the loss in the following year. Although the IRS agreed that the loss might be allowed in a subsequent year, there was no assent to allow the loss in any specific tax year. Moreover, the settlement did not contain any express agreement as to the business losses. Therefore, there was no binding agreement as to the losses.

K.J. Barela, 88 TCM 65, Dec. 55,707(M), TC Memo. 2004-175.

An IRS Appeals officer abused his discretion in denying a couple's offer in compromise on the grounds that the taxpayers had inadequate income to meet their living expenses and pay the proposed monthly payments. The officer appeared to rely exclusively on the IRS's prescribed schedule of national and local average living expenses to determine that the taxpayers' basic living expenses exceeded their monthly income. However, all of the facts and circumstances, including the schedule of actual expenses submitted by the taxpayers, should have been considered in determining whether the taxpayers could pay both their expenses and the installment payments ( Code Sec. 7122(c)(2)). The filing of the federal tax liens to secure the IRS's interest in the unpaid tax liability was not an abuse of discretion.

M. Fowler, 88 TCM 17, Dec. 55,689(M), TC Memo. 2004-163.

Married taxpayers' challenge to an adverse Collection Due Process determination was rejected because they failed to establish an abuse of discretion on the part of the IRS. The officer's determination that the taxpayers had some ability to pay was supported by their proposed offer in compromise. In light of the unresolved question regarding the taxpayers' ownership of real property, the rejection of their proposed offer in compromise was sustained.

D.G. Willis, 86 TCM 506, Dec. 55,334(M), TC Memo. 2003-302.

A married couple's offer to settle their tax liability for the amount of their deficiency, but excluding penalties and interest, did not constitute a binding compromise agreement. The taxpayers had received an oral confirmation from the IRS auditor that their offer had been accepted; however, the auditor believed their offer was a request for additional time to pay. In fact, the taxpayers had not submitted the offer on the appropriate form and had not received a written confirmation that the offer was accepted. Further, there was no mutual assent to the offer since the auditor misunderstood the nature of their request.

J. Ringgold, 86 TCM 28, Dec. 55,218(M), TC Memo. 2003-199.

The IRS's action in cashing a check submitted by an exempt association with a letter that purported to be an offer in compromise did not amount to an acceptance of the entity's offer and did not bar the IRS from asserting that its income activity gave rise to unrelated business taxable income. Rather, the letter merely constituted a settlement offer to resolve the dispute resulting from the IRS audit of the taxpayer for three of the tax years in issue. Moreover, no compromise was effected because the letter failed to meet the specific requirements of Code Sec. 7122.

Education Athletic Assoc., Inc., 77 TCM 1525, Dec. 53,284(M), TC Memo. 1999-75.

Married taxpayers who were assessed deficiencies did not have a binding settlement agreement with the IRS regarding the years at issue. Although the taxpayers submitted several Forms 656, Offer in Compromise in Any Civil or Criminal Case, and District Director's Recommendation, the IRS never accepted any of their settlement offers. An IRS employee's signing of the forms to indicate that the IRS accepted the taxpayers' waiver of the limitations period did not constitute an acceptance of their offers. Further, the IRS employee and the taxpayers' accountant testified that the IRS employee never orally agreed to accept the taxpayers' proposals. Since the husband had a history of dishonest, criminal behavior, his testimony with respect to the alleged oral agreement lacked credibility. Thus, the taxpayers failed to establish that a binding agreement existed.

D.L. Streck, 74 TCM 545, Dec. 52,240(M), TC Memo. 1997-407. Aff'd, CA-6 (unpublished opinion), 99-2 USTC ¶50,650.

The IRS and an investor did not enter into a binding settlement agreement on deficiencies related to a tax shelter because the parties did not mutually assent to a settlement. The taxpayer failed to indicate his belief that a settlement agreement had been entered into until six months after he received written indications that the IRS did not believe that a settlement agreement existed.

T.W. Heil, 68 TCM 513, Dec. 50,071(M), TC Memo. 1994-417.

The government was not bound by an alleged proposed settlement between a former attorney and his wife and the IRS. A proposed decision document did not conform to the formalities required to execute a binding settlement. Even if the document constituted a formal settlement offer, there was no evidence that the taxpayers executed the agreement. Moreover, the IRS never executed the agreement, and no such document was filed with the Tax Court.

B.J. O'Sullivan, 68 TCM 407, Dec. 50,046(M), TC Memo. 1994-395. Aff'd, CA-9 (unpublished opinion), 96-2 USTC ¶50,496.

A notice of deficiency was not invalidated on account of a prior assessment where it was sent to a taxpayer who, along with her husband (who was also her business partner), had signed a Form 870-L(AD) settlement offer that was not signed by the IRS until after the husband filed for bankruptcy. The settlement agreement was void as to both spouses because acceptance of the offer was precluded by the automatic stay provision of the Bankruptcy Code.

N.J. Gillian, 66 TCM 398, Dec. 49,218(M), TC Memo. 1993-366.

In a case involving a delinquent taxpayer who entered into a compromise agreement with the IRS to discharge the federal tax lien on her home in order to facilitate its sale, and who subsequently sought to compromise her tax liability after a collateral agreement was signed, Chief Counsel determined that the Service could accept the offer. The taxpayer submitted a separate offer in compromise conditioned on the Service's release of the mortgage on her home. However, acceptance of such an offer did not require the IRS to release the mortgage. A collateral agreement in which the taxpayer grants additional security to the IRS creates an independent cause of action and, thus, the original unpaid taxes giving rise to the statutory liens remain as separate liabilities. Absent language to the contrary in the compromise agreement, the mortgage remains unaffected.

IRS Letter Ruling 200133028, July 17, 2001.

Chief Counsel determined that a Compliance Area Director is entitled to compromise a case notwithstanding an opinion by Associate Area Counsel that opposed acceptance of a taxpayer's offer based upon a purported economic hardship that would ensue from collection in full. Although Code Sec. 7122(b) requires the opinion of the Associate Area Counsel whenever an offer in compromise is made, the opinion need not favor acceptance of the compromise in order for the IRS to accept the offer. The ultimate determination of whether an offer is accepted lies with the Area Director or other delegated official. However, an offer may not be accepted unless one of the bases for compromise recognized by Reg. 301.7122-1T has been established.

CCA Letter Ruling 200128054, May 29, 2001.

The IRS could exercise its discretion to accept an offer in compromise in spite of the fact that processability rules pertaining to deposit, payment and filing of employment taxes changed prior to acceptance of the offer. Chief Counsel determined that the in-business corporation could not compel the IRS to apply the former rule that it demonstrated compliance by showing that it had been current in the preceding two quarters, rather than demonstrating compliance by having timely filed and timely deposited the previous two quarters' taxes. Nothing in the Internal Revenue Code or regulations prevented the Service from exercising its discretion to process an offer based on criteria that existed when the offer was first submitted.

CCA Letter Ruling 200137001, April 12, 2001.

The government's letter to an individual did not constitute an acceptance of his settlement offer. The letter did not mirror the terms of the offer because it made no reference to the interest that would accrue if the individual failed to pay the settlement amount within 120 days of acceptance. Instead, it provided that the offer would be accepted on condition that payment is made within 120 days; therefore, the letter altered the terms of the offer and was construed as a counteroffer.

E.A. Brinskele, FedCl, 2008-2 USTC ¶50,493.

An Appeals officer's determination to reject an offer in compromise and sustain a levy to collect trust fund recovery penalties was not an abuse of discretion. The record established that the determination complied with all the requirements of the Internal Revenue Code, the Treasury Regulations and the Internal Revenue Manual. The Appeals officer sustained the levy only after a complete review of individual's financial records, and after determining that the offer in compromise was insufficient. Moreover, the taxpayer conceded that the IRS was not required to negotiate an acceptable offer in compromise.

R.E. Marshall, CA-11, 2008-2 USTC ¶50,662.


[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.

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.

The government was entitled to reduce to judgment federal income, employment and unemployment taxes assessed against an individual. . Because the individual failed to timely appeal the denial of his offer in compromise to the IRS Office of Appeals, he could not later request a review of that denial in the district court.

D.L. Kadunce, DC Pa., 2008-2 USTC ¶50,669.

With the start of the 2009 tax filing season, the IRS has announced steps to help financially distressed taxpayers receive their refunds faster, as well as provided additional help to individuals who are struggling to meet their tax obligations. Several suggestions are offered to taxpayers who owe back taxes, such as additional review of offers-in-compromise and expedited levy releases.

IRS News Release IR-2009-2.