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Wednesday, August 15, 2012
offer in compromise annotations
Ann ¶ 1635.013(10). Compromise.
Taxpayer who voluntarily remits partial payment when additional tax, penalty, and interest have been assessed, will have payment allocated accordingly: IRS will comply with specific directions sent with payment, and if taxpayer provides no directions, payment will be applied to tax, penalty, then interest for successive periods. Payments made according to offer in compromise or collateral agreement accepted under Code Sec. 7122 will be applied under terms of agreement. If offer in compromise or collateral agreement hasn't been accepted by IRS, payments will be applied according to tax, penalty, then interest for successive periods. Where payment is applied to interest, amount applied will be treated as interest paid in year payment was made for purposes of Code Sec. 163.
U.S. v Jaffry (1938, CA8) 21 AFTR 535, 97 F2d 488, 38-2 USTC ¶9402, aff'd without discussion of this point (U.S. v Bertelsen & Petersen Engineering Co.) (1939, S Ct) 22 AFTR 279, 306 US 276, 39-1 USTC ¶9335.
Interest included in lump-sum settlement of Federal taxes, penalties, and interest deductible where amount of interest is ascertainable from agreement or circumstances surrounding it.
Lustig v U.S. (1956) 49 AFTR 628, 134 Ct Cl 351, 138 F Supp 870, 56-1 USTC ¶9327.
Deduction denied where IRS accepted lump sum "offer in compromise" of proposed income tax deficiencies plus penalties and interest.
Taxpayers' income tax deficiency interest from farming business was deductible business expense; IRS argument that it was “personal interest” rejected. Reg § 1.163-9Twas invalid in its inclusion of any underpayment of tax regardless of source in “personal interest”; Code Sec. 163(h)specifically excludes any interest paid that is allocable to trade or business.
Miller, David v. U.S., (1993, DC ND), 72 AFTR 2d 93-6017, 841 F Supp 305, 93-2 USTC ¶50631. See related proceeding below.
Where taxpayer paid pursuant to settlement amount less than total of compromised taxes and penalties, payments were applied in accordance with Rev. Rul. 58-239, 1958-1 CB 94at ¶ 1635.013(12) below, i.e., applied against taxes, penalties, and interest, in that order, due for earliest year, then in same way to each succeeding year until payments absorbed. Payments applied to interest deductible. Accrual of interest limited to interest portions of actual payments made.
Robbins Tire and Rubber Co., Inc. (1969) 52 TC 420, acq 1973-2 CB 3.
Deduction denied for interest on deficiency when it was evident under "offer in compromise" agreement that interest would never be paid.
American Textile Woolen Co. ¶42085 PH BTA Memo.
Deduction allowed where payments under "offer in compromise" exceeded unpaid liability for tax deficiencies and penalties. Excess payments were allocated to unpaid interest.
Deductions for tax deficiency interest were properly disallowed, even though income was derived from business: temp. Reg § 1.163-9T(b)(2)(i)(A)'s provision that interest on income tax deficiency was non-deductible personal interest per se was valid.