CCA 200128054 ________________________________________ Although section 7122(a) grants the Secretary broad authority to compromise, Treasury Regulations issued pursuant to that section establish that compromise can only be made on specific grounds. No compromise may be made unless one of the bases for compromise recognized by the regulations has been established Can the Compliance Area Director accept an offer in compromise if no grounds for compromise under section 301.7122-1T of the Treasury Regulations have been established? CONCLUSIONS: 1. Yes. Although section 7122(b) of the Internal Revenue Code requires that an opinion of Counsel be placed on file whenever a compromise is made, Counsel's opinion need not favor compromise in order for the Service to accept an offer. . BACKGROUND On July 19, 1999, temporary regulations were issued which expanded the Secretary's authority to compromise tax liabilities under section 7122 of the Code. See T.D. 8829, Compromises, 64 Fed. Reg. 39020 (July 21, 1999). In additional to the traditional compromise grounds of doubt as to liability and doubt as to collectibility, the temporary regulations authorize the Secretary to compromise when compromise will promote effective tax administration. Specifically, where there is no doubt as to either liability or collectibility, the Service may now compromise on the basis that: 1) collection of the full tax liability would create economic hardship, or 2) regardless of the taxpayer's financial condition, exceptional circumstances exist such that collection of the full liability would be detrimental to voluntary compliance by taxpayers. See Treas. Reg. section 301.7122-1T(b)(4). You have asked our advice regarding several issues revolving around this expanded compromise authority. Specifically, you have asked whether and under what circumstances the Area Director can compromise a case notwithstanding an opinion by Counsel which opposes acceptance of a taxpayer's offer when the offer is based on a purported finding that collection in full would cause the taxpayer economic hardship. First, you have asked that we address a situation in which the offer group has established that collection in full would result in economic hardship, but Counsel issues an opinion sating that the amount proposed for acceptance is nevertheless too low under the circumstances of the case. Second, you have asked our opinion of a case in which it has not been established that collection in full would result in economic hardship. DISCUSSION Section 7122(a) of the Internal Revenue Code grants the Secretary the authority to compromise civil or criminal liabilities arising under the internal revenue laws. Ever since that authority was granted in 1868, the Code has also required that an opinion of Counsel be placed on file in certain cases. The current statement of this requirement provides: Record. — Whenever a compromise is made by the Secretary in any case, there shall be placed on file in the office of the Secretary the opinion of the General Counsel for the Department of the Treasury or his delegate, 1 with his reasons therefor, with a statement of — (1) The amount of tax assessed, (2) The amount of interest, additional amount, addition to the tax, or assessable penalty, imposed by law on the person against whom the tax is assessed, and (3) The amount actually paid in accordance with the terms of the compromise. Notwithstanding the foregoing provisions of this subsection, no such opinion shall be required with respect to the compromise of any civil case in which the unpaid amount of tax assessed (including any interest, additional amount, addition to the tax, or assessable penalty) is less than $50,000. However, such compromise shall be subject to continuing quality review by the Secretary. I.R.C. section 7122(b). The system for obtaining review of offers recommended for acceptance is contained in the Service's IRM Handbook 5.8, Offers in Compromise, Chapter 8, and in the Chief Counsel Directives Manual, Part 34, Chapter 5 (CCDM 34.5). The opinion of Counsel is sought after a recommendation of acceptance has been made but prior to formal acceptance of the offer by the official with delegated authority to accept. IRM 5.8.8.4.3. The offer itself (Form 656), along with the Form 7249, Offer Acceptance Report, and supporting documentation, are sent to the appropriate Associate Area Counsel (SB/SE) office for review. The Service expects that Counsel's opinion will assess both whether the legal requirements for compromise are met and whether the offer conforms to the Service's policies and procedures. IRM 5.8.8.2(2). The CCDM states that the "primary role" of Counsel "is to determine whether there is a bonafide doubt as to liability or doubt as to collectibility." CCDM 34.5.2.1(3)a. At the time this manual section was promulgated, doubt as to collectibility and doubt as to liability were the only authorized bases for compromise under then governing Treasury regulations. See Treas. Reg. section 301.7122-1(a) (1960). Although the permissible bases for compromise have since been expanded in the regulations to include the promotion of effective tax administration, Counsel's role has not changed, and verifying that a basis for compromise is present continues to be the most important part of Counsel's role in reviewing proposed acceptances. Although verifying that there is a legal basis for compromise is the principal role of Counsel, most of the manual is dedicated to Counsel's examination of the "adequacy" of the amount proposed for acceptance, a matter which is undoubtedly a question of policy. See T.D. 8829, 64 Fed. Reg. at 39023 ("[T]he amount to be paid, future compliance or other conditions precedent to satisfaction of a liability for less than the full amount due are matters left to the discretion of the Secretary."). Thus, both the offer in compromise handbook and the CCDM recognize that the role of Counsel is to review both legal and policy issues. Asking that Counsel review policy matters does not grant a veto power or establish that Counsel has final say over whether an offer will be accepted. The procedures explicitly recognize that Counsel's concurrence in the decision to compromise is not required. See IRM 5.8.8.2(2); CCDM 34.5.2.1(3)a.5. Thus, if Counsel issues an opinion that the compromise of the case is not in keeping with the Service's acceptance policy, either because the amount offered is too low or for any other reason, the Service may nevertheless compromise the case. Because the Counsel opinion is sought prior to the issuance of an acceptance letter, the official with final authority to accept will have an opportunity to consider Counsel's concerns before the decision to accept is made final. Your question assumes that the basis for compromise is the promotion of effective tax administration, specifically economic hardship. The Internal Revenue Manual gives the following guidance with respect to determining an acceptable offer based on considerations of economic hardship: In offers based on economic hardship, an acceptable offer amount should be determined based on the facts and circumstances of the taxpayer's situation and the financial information analysis. For example, the taxpayer has $100,000 liability and assets and income of $125,000. To avoid economic hardship, it is determined that the taxpayer will need $75,000. The remaining $50,000 should be considered in determining an acceptable offer amount. IRM 5.8.11.2.1(4). The standard articulated in this manual provision appears very similar to the "reasonable collection potential" standard used for doubt as to collectibility offers, see Policy Statement P-5-100, in that the Service expects a taxpayer to offer an amount equal to that which could be collected after the economic hardship has been accounted for. Counsel's disagreement with the amount determined to be acceptable pursuant to the foregoing guidance will not bar compromise of the case. As with all advice issued by Counsel, it is appropriate and proper for you to render your opinion as to whether a proposed action is in keeping with the Service's stated policies. The ultimate decision, however, remains with the Area Director or other delegated official. A more serious issue is presented if Counsel concludes that no basis for compromise is present. Treasury regulations enacted by the Secretary in accordance with required procedures have the force and effect of law. They are mandatory, not directory, and must be followed. See Boulez v. Commissioner, 810 F.2d 209, 215 (D.C. Cir. 1987) (specifically discussing compromise regulations under section 7122). 2 In fact, the Supreme Court has recognized that it "must defer to Treasury Regulations that implement the congressional mandate in some reasonable manner." Commissioner v. Portland Cement Co., 450 U.S. 156, 169 (1981) (citations and internal quotation marks omitted). The Commissioner's delegation of authority to compromise necessarily carries with it the implicit assumption that it will be exercised in accordance with applicable law and regulations. See Boulez, 810 F.2d at 215 (stating that it "defies common sense" to infer that Secretary's delegates may waive requirements stated in regulations). Thus, no Service official may compromise a case unless it has been established that a basis for compromise, as established by Temp. Treas. Reg. section 301.7122-1T, is present in the case. 3 Confusion on this point may in part stem from language in prior versions of Delegation Order No. 11, which grants certain officials the authority to compromise. Prior to revision in November 1999, the delegation of authority vested in certain officials the authority to compromise "in the event Counsel renders a negative legal opinion." Delegation Order No. 11 (Rev. 25) (September 29, 1997). In spite of internal guidance to the contrary, many within the Service mistakenly believed that this language authorized compromise even where there was no doubt as to either liability or collectibility. In reality, this delegation was intended to authorize certain officials to accept less than reasonable collection potential once doubt as to collectibility had been established. See Delegation Order No. 11 (Rev. 24) (June 21, 1994) (stating that authority to accept notwithstanding negative Counsel opinion "applies only to offers in compromise — Doubt as to Collectibility"). The more recent delegation of compromise authority, partially in an effort to alleviate any confusion, has removed language making reference to the opinion of Counsel in favor of positive grants of authority to certain officials. The authority to accept less than could otherwise be collected in a doubt as to collectibility case, now referred to as compromise based on "special circumstances," is specifically delegated to certain officials. See Delegation Order No. 11 (Rev. 27) (November 1, 1999) (delegating authority to accept offers based on special circumstance criteria as well as authority to accept offers based on the promotion of effective tax administration); IRM 5.8.8.3 (explaining special circumstances criteria and acceptance authority). In reviewing proposed acceptances, Counsel should defer to the offer group on factual determinations such as valuation of assets, allowable expenses, and the existence of circumstances which warrant acceptance of less than could otherwise be collected. 4 If, having done so, Counsel is unable to verify that a basis for compromise as authorized under the regulations is present, that determination is more than a policy disagreement. Under such circumstances, the seriousness of the decision to compromise warrants opening up a dialogue with the Area Director to attempt to reach consensus. If no consensus can be reached, it is appropriate to elevate the question to higher levels of management just as would be done in any other type of case. Nevertheless, because both Compliance and Counsel are working toward the same goals, disputes of this nature should be rare. If you have any questions, please contact the attorney assigned to this matter at 202-622-3620. ________________________________________ 1 The General Counsel for the Treasury has delegated the functions relative to the review of offers in compromise to the Chief Counsel of the Internal Revenue Service. See General Counsel Order No. 4. (Rev. January 19, 2001). ________________________________________ 2 In Boulez, the court was considering the requirement, contained in the regulations but not in the statute, that all compromises be in writing. We find the court's analysis even more persuasive when the issue is one of substantive authority as opposed to mere procedural safeguards. In the words of the court: "Indeed, when a compromise of tax liability is at issue, the need for rigorous compliance with pertinent regulations may be at its greatest, for not only the integrity of the public fisc but also public faith in the equitable enforcement of the tax laws hangs in the balance." 810 F.2d at 218. ________________________________________ 3 See also Rev. Proc. 80-6, 1980-1 C.B. 586. In explaining the various delegations of compromise authority, the revenue procedure stated: "The above delegations are 'limited' to the extent that the delegated authority must be exercised in accordance with the limitations prescribed by section 301.7122-1 of the Regulations on Procedure and Administration and with procedures established by the National Office." ________________________________________ 4 At the outset, the CCDM states clearly that the factual determinations of the Service are not to be reexamined unless "patently erroneous" and that asset valuations in particular are "largely matters of administrative discretion and judgment and should rarely be questioned by Counsel." CCDM 34.5.2.1(3)a.1.

Offer in Compromise - section 7122

If an offer accepted for processing does not contain sufficient information to permit the IRS to evaluate whether the offer should be accepted, the IRS will request that the taxpayer provide the needed additional information. Sec. 301.7122-1(d)(2), Proced. & Admin. Regs.


William J. and Lois J. DiCindio v. Commissioner.

Dkt. No. 7029-03L , TC Memo. 2007-77, April 2, 2007.

[Appealable, barring stipulation to the contrary, to CA-3. --CCH.]

[Code Secs. 6330 and 7122]
Notice of Levy and right to hearing: Collection Due Process hearing: Abuse of discretion. --
The IRS's determination to reject a married couple's offer-in-compromise (OIC) and proceed with collection of tax liabilities was not an abuse of discretion. Returning the OIC for additional information was not arbitrary and capricious, and the decision not to process the OIC because the couple failed to provide additional requested information was consistent with the prescribed guidelines and was a reasonable exercise of the IRS's discretion. It was also not an abuse of discretion to reject the couple's OIC because they failed to submit additional information before the court ruled on their pending motion for reconsideration. An extension of any deadlines related to the IRS's processing of the OIC would not have changed the OIC's disposition. --CCH.





MEMORANDUM OPINION

COLVIN, Chief Judge: Respondent sent a Notice of Determination Concerning Collection Action(s) Under Section 6320 1 and/or 6330 to petitioners in which respondent determined that it was appropriate to sustain collection action with respect to petitioners' unpaid income taxes for 1985-89 and 1991-2001 (the years in issue).2 Thereafter petitioners timely filed a petition in which they requested our review of respondent's determination. The issue for decision is whether respondent's determination to reject petitioners' offer-in-compromise (OIC) and proceed with collection was an abuse of discretion. We hold that it was not.


Background

Some of the facts have been stipulated and are so found. Petitioners are married and resided in Edison, New Jersey, at the time the petition was filed.

Respondent issued a Final Notice of Intent to Levy and Notice of Your Right to a Hearing to petitioners on September 5, 2002. Petitioners timely requested a collection due process hearing on October 1, 2002. Petitioners' outstanding tax liability is $463,496 plus statutory additions. Petitioners did not challenge the assessments or the underlying tax liabilities. A settlement officer (SO) from respondent's Appeals Office (Appeals) spoke on the telephone with petitioners' representative on February 4, 2003. The SO told petitioners' representative that collection alternatives such as an OIC or an installment agreement would not be considered because of petitioners' poor compliance record. Respondent issued the notice of determination on April 8, 2003, sustaining the levy.

In the petition, petitioners alleged errors in the notice of determination, specifically that Appeals failed to give them a fair hearing and that Appeals failed to act properly with regard to the collection activity. After the petition was filed, counsel for respondent requested that Appeals discuss collection alternatives with petitioners at a face-to-face hearing. Petitioner3 and respondent's SO met on September 9, 2003, and discussed collection alternatives. Petitioners submitted an OIC on November 6, 2003. On December 1, 2003, the SO sent petitioners a letter requesting that they complete missing items on the form and submit additional information.

This case was calendared for trial at the May 3, 2004, session of this Court in New York, New York. Petitioners filed a motion for continuance in which they stated that they would be submitting an OIC. The Court granted the motion. The case was then calendared for trial at the session of this Court beginning on January 24, 2005. Petitioners filed another motion for continuance in order to retain counsel. The Court granted the motion and ordered petitioners to submit an OIC to respondent no later than March 1, 2005. Petitioners filed a status report on March 1, 2005, stating that they had decided not to submit an OIC because they would have no way of paying the debt. Trial was held on September 19, 2005, in New York, New York.

Following trial, the Court ordered petitioners to provide counsel for respondent a complete Form 656, Offer in Compromise, and an updated Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals. Counsel for respondent received petitioners' OIC on November 15, 2005, and sent it to an offer specialist (OS) for consideration. In the following months, the OS requested that petitioners provide additional information by various deadlines. Petitioners did not meet any of these deadlines.

In April 2006, petitioners requested that the Court keep the pending OIC open for consideration until August 15, 2006, so that petitioner could file his 2005 income tax return. The Court denied petitioners' request. Thereafter, respondent returned the pending OIC to petitioners and closed their file because petitioners had failed to provide additional information necessary to determine the acceptability of their offer and they failed to verify their compliance with the estimated income tax requirements for 2005 and 2006.


Discussion

Petitioners contend that respondent's refusal to consider their offer-in-compromise submitted on November 15, 2005, for the years in issue was an abuse of discretion. We disagree. Section 7122(c)(1) provides that the Secretary shall prescribe guidelines for the Internal Revenue Service (IRS) to use in determining whether to accept an OIC. The decision to accept or reject an OIC, as well as the terms and conditions to which the IRS agrees, is left to the discretion of the Secretary. Sec. 301.7122-1(c)(1), Proced. & Admin. Regs.

Petitioners contend that returning their OIC for additional information was arbitrary and capricious. We disagree.

If an offer accepted for processing does not contain sufficient information to permit the IRS to evaluate whether the offer should be accepted, the IRS will request that the taxpayer provide the needed additional information. Sec. 301.7122-1(d)(2), Proced. & Admin. Regs. On three separate occasions, respondent's OS contacted petitioners to request additional information. The OS explained that this additional information was necessary to account for discrepancies between petitioners' Form 433-A and the information they had previously submitted. Petitioners failed to provide the requested information. If the taxpayer does not submit the requested information to the IRS within a reasonable time after a request, the IRS may return the offer to the taxpayer. Id. The decision not to process petitioners' OIC on account of their failure to provide additional information was consistent with the prescribed guidelines and was a reasonable exercise of respondent's discretion.

Petitioners contend that respondent's rejection of their OIC while a motion for reconsideration was pending before the Court was an abuse of discretion. We disagree.

The granting of a motion to reconsider rests in the discretion of the Court. Louisville & Nashville R. Co. v. Commissioner [81-1 USTC ¶9212], 641 F.2d 435, 443-444 (6th Cir. 1981), affg. on this issue and revg. on other issues [Dec. 34,014] 66 T.C. 962 (1976); Estate of Halas v. Commissioner [Dec. 46,522], 94 T.C. 570, 574 (1990); Vaughn v. Commissioner [Dec. 43,183], 87 T.C. 164, 166-167 (1986). Motions to reconsider will not be granted unless unusual circumstances or substantial error is shown. Estate of Halas v. Commissioner, supra at 574; Vaughn v. Commissioner, supra at 167. Petitioners submitted their offer-in-compromise to respondent on November 15, 2005. However, they failed to respond to respondent's repeated requests for additional information. In April 2006, petitioners requested an extension until August 15, 2006, so that petitioner could file his 2005 income tax return. The Court was not persuaded that petitioners were entitled to an extension of any deadlines related to respondent's processing of the OIC and denied their motion. In the interim, respondent rejected petitioners' OIC.

We have no reason to believe that an extension to August would have changed the disposition of petitioners' offer-in-compromise. The reason for the requested extension was to file petitioner's 2005 income tax return. However, the filing of petitioner's 2005 income tax return was not a requirement of respondent's acceptance of the offer. The OS knew that petitioner had requested an extension for filing his 2005 taxes. The information that the OS needed, however, had to do with additional information to verify and confirm the data on the submitted OIC. Therefore, it was not an abuse of discretion to reject petitioners' OIC on account of their failure to submit additional information before the Court ruled on petitioners' pending motion for reconsideration.

We conclude that respondent may proceed with collection of petitioners' tax liabilities for 1985-89 and 1991-2001 because respondent's rejection of petitioners' offer-in-compromise was not an abuse of discretion.

Decision will be entered for respondent.

1 Unless otherwise indicated, section references are to the Internal Revenue Code as amended.

2 In the petition, petitioners also disputed the collection action for taxable year 1990. No notice of determination was issued to petitioners for that year. By separate order, the Court dismissed this case as it relates to taxable year 1990.

3 References to petitioner are to William J. DiCindio.


William J. DiCindio; Lois J. DiCindio, Appellants v. Commissioner of Internal Revenue.

U.S. Court of Appeals, 3rd Circuit; 07-3476, February 20, 2008.

Unpublished opinion, vacating and remanding in part, affirming in part, per curiam, the Tax Court, Dec. 56,884(M); 93 TCM 1060; TC Memo. 2007-77.

[ Code Sec. 7122]

Notice of Levy and right to hearing: Collection Due Process hearing: Offers-in-compromise: Abuse of discretion. --
The IRS's determination to reject a married couple's offer-in-compromise (OIC) and proceed with collection of tax liabilities was not an abuse of discretion. The couple's OIC was rejected because they failed to provide additional requested information needed to evaluate the offer. Further, the couple had been given several opportunities and extensions of time to file their completed OIC. Moreover, they were not current with their estimated taxes.



Before: Ambro, Fuentes and Fisher, Circuit Judges.


OPINION


PER CURIAM: William and Lois DiCindio appeal the Tax Court's decision allowing the appellee to proceed with a collection action. The procedural history of this case and the details of the DiCindios' claims are well known to the parties, set forth in the Tax Court's thorough opinion, and need not be discussed at length. Briefly, the DiCindios filed a petition in the Tax Court challenging a notice of determination with respect to fourteen years of unpaid tax liabilities. The DiCindios did not challenge the amount of the taxes that they owe. During the Tax Court proceedings, appellee agreed to evaluate an offer in compromise from the DiCindios. The offer was returned to the DiCindios because they failed to provide the information needed to evaluate the offer. They had also not shown that they had paid estimated income tax for 2005 and 2006. The Tax Court upheld the notice of determination. The DiCindios filed a timely notice of appeal, and we have jurisdiction under 26 U.S.C. §7482(a)(1).

On appeal, the DiCindios argue that the Tax Court erred by not directing appellee to request and evaluate two offers in compromise. However, the offer specialist who evaluated the offer noted that she was overlooking the absence of two offers and other processing deficiencies because the offer had been submitted by order of the Tax Court. Moreover, the offer was rejected because the DiCindios failed to provide the necessary information to evaluate the offer, not because there were not two separate offers.

The DiCindios further argue that the appellee will not process an offer in compromise unless the taxpayers are current with their estimated taxes. Therefore, they contend that the Tax Court erred by denying their request to stay the case and their motion for a reconsideration because they had filed a request for an extension of time to pay their taxes. However, by filing a Form 4868, a taxpayer can only request an extension of time to file a return; filing the form does not entitle one to an extension of time to pay the taxes owed. See Deaton v. Commissioner, 440 F.3d 223, 224 (5th Cir. 2006). The DiCindios were given several opportunities and extensions of time to file their completed offer in compromise. Their arguments are without merit.

The DiCindios' final argument is that the appellee closed the file on their offer in compromise while their motion for reconsideration was still pending before the Tax Court. We agree with the Tax Court that this was not an abuse of discretion.

Appellee notes that a final notice of intent to levy was not sent for the tax years of 1988 and 2001 and that the Tax Court lacked jurisdiction over those years. Appellee requests that the case be remanded to the Tax Court for removal of those years from the decision. Accordingly, we will vacate the Tax Court decision in part and remand the matter with instructions to correct the decision to remove the tax years 1988 and 2001. In all other respects, we will affirm the decision of the Tax Court for the above reasons as well as those set forth by the Tax Court.