A compromise is an agreement between a taxpayer and IRS (or in some cases the Justice Department, that settles a tax liability for payment of less than the total amount determined and assessed. Although IRS generally expects that all taxpayers will pay the total tax due, regardless of amount, IRS recognizes that it is both sound business practice and good tax policy to settle some cases for less than the total amount due. Preamble to TD 9007, 7/18/2002 . IRS may compromise a tax liability on any of the following grounds: (1) doubt as to the liability; (2) doubt as to collectibility; or (3) to promote effective tax administration, as described in detail at. Code Sec. 7122 ; Reg §301.7122-1 , ; Statement of Procedural Rules, Reg §601.203 , see ¶76,557 . For applicability and scope of compromise agreements..
IRS may compromise a liability before reference of a case involving the liability to the Department of Justice. Reg §301.7122-1(a) , Statement of Procedural Rules, Code Sec. 601.203 . Regs describe the authority delegated to various IRS officials to accept or reject offers in compromise. The authority is limited by such factors as the amount involved, the nature of the liability (e.g., whether it involves penalties, criminal liability, certain excise taxes), and the basis of the offer (e.g., whether there is doubt as to collectibility or as to liability). Reg §601.203(a) .
The legislative history of section 7122 included the following from the (IRS Restructuring and Reform Act of 1998, , PL 105-206, 7/22/98)