Offer in compromise based on reasonable collection potential

 An OIC based on doubt as to collectibility is acceptable if it reflects the taxpayer's reasonable collection potential (RCP). Murphy v. Commissioner, 125 T.C. at 309; Rev. Proc. 2003-71, sec. 4.02(2), 2003-2 C.B. 517, 517. An OIC will generally be rejected if the RCP meets or exceeds the amount offered in the OIC. IRM pt. 5.8.4.3 (May 10, 2013). The value of dissipated assets may be included in a taxpayer's RCP. See Tucker v. Commissioner, T.C. Memo. 2011-67, aff'd, 676 F.3d 1129 (D.C. Cir. 2012); IRM pt. 5.8.5.16 (Oct. 22, 2010).

Tax Court Regulars (Current), Tom Reed v. Commissioner., U.S. Tax Court, CCH Dec. 59,648, 141 T.C. No. 7, (Sept. 23, 2013)

Tom Reed v. Commissioner.

U.S. Tax Court, Dkt. No. 27604-11L, 141 TC —, No. 7, September 23, 2013.

[Appealable, barring stipulation to the contrary, to CA-5.—CCH.]

[ Code Sec. 6330]

Collection and levy: Collection Due Process hearing: Returned offer-in-compromise: Review: Tax Court jurisdiction.–

The Tax Court had jurisdiction to review an IRS settlement officer’s decision to refuse to reconsider a returned offer-in-compromise. The Tax Court has jurisdiction to review any determination sustaining a levy made in an offer-in compromise Collection Due Process hearing. Further, it was not an abuse of discretion for the IRS settlement officer to refuse to reconsider old offers-in-compromise that the IRS had previously rejected or returned to the taxpayer. The officer reasonably determined based on the record before her that the first offer-in-compromise had been properly rejected despite dissipation of the assets and that a second offer-in-compromise had been properly returned because the taxpayer owed additional estimated taxes for the year before.—CCH.

[ Code Secs. 6330 and 7220]

Collection and levy: Collection Due Process hearing: Returned offer-in-compromise: Reconsideration of offer.–

The IRS was not required to consider in a Collection Due Process hearing an old offer-in-compromise made years before and returned to the taxpayer. Such a rule would impermissibly expand the IRS’s authority to compromise an unpaid tax liability by using a taxpayer’s past rather than current financial data to establish uncollectibility. Furthermore, such a rule would interfere with Congress’ statutory scheme that provides for administrative review of the IRS’s rejection of an offer-in-compromise, but not for a return by the IRS of an offer-in-compromise to the taxpayer. Mandatory consideration in a Collection Due Process hearing of an earlier returned offer-in-compromise would create additional layers of review if the IRS returns an offer-in-compromise before a hearing begins, but not if the IRS returns it after the hearing concludes. There is no reason for such disparate treatment based only on when the IRS returns an offer-in compromise.—CCH.

George W. Connelly, Jr., Heather M. Pesikoff, and Renesha N. Fountain, for petitioner; David Baudilio Mora and Gordon P. Sanz, for respondent.

P failed to file Federal income tax returns timely for years 1987 through 2001. P subsequently submitted delinquent returns but failed to fully satisfy the outstanding tax liabilities. P submitted two separate offers-in-compromise (OICs) to settle the outstanding tax liabilities. R rejected the first OIC. R returned the second OIC. R issued a final notice of intent to levy. P requested a collection due process hearing (collection hearing). P raised issues during the collection hearing regarding R's handling of the two OICs and requested that the returned OIC be reopened. R concluded that he did not have the authority to reopen the returned OIC and sustained the final notice of intent to levy. P contends that R abused his discretion in sustaining the final notice of intent to levy. P argues that R abused his discretion by concluding that he lacked the authority to reopen an OIC based on doubt as to collectibility that R returned to P years before the collection hearing commenced. R argues this Court lacks jurisdiction to determine whether he abused his discretion because P proposed no new OIC during the collection hearing. R further argues that this Court lacks jurisdiction because P has no judicial review rights relating to R's rejecting or returning an OIC. Held, this Court has jurisdiction to determine whether R abused his discretion in sustaining the final notice of intent to levy. Held, further, R cannot be required to reopen an OIC based on doubt as to collectibility that R returned to P years before the collection hearing commenced. Held, further, R did not abuse his discretion in sustaining the final notice of intent to levy. OPINION KROUPA, Judge: This collection review matter is before the Court because petitioner challenges a determination notice. See sec. 6330(d)(1). 1 Respondent issued the determination notice sustaining a final notice of intent to levy (proposed levy action). The primary issue we are asked to decide is whether respondent abused his discretion in sustaining the proposed levy action. We hold he did not. Determining whether respondent abused his discretion requires us to first consider three questions. Two of these questions involve well-trodden areas of law. The remaining question involves an issue of first impression. That question is: can respondent be required to reopen an offer-in-compromise (OIC) based on doubt as to collectibility that he had returned to petitioner as unprocessable years before a collection due process hearing (collection hearing) commenced? 2 We hold that respondent cannot be required to reopen an OIC based on doubt as to collectibility that he had returned to petitioner as unprocessable years before the collection hearing commenced. Background Some of the facts have been stipulated and are so found. The stipulation of facts and its accompanying exhibits are incorporated by this reference. Petitioner resided in Texas at the time he filed the petition. Petitioner failed to file Federal income tax returns timely for years 1987 through 2001 (years at issue). 3 Petitioner eventually filed returns for the years at issue (delinquent returns), but did not fully satisfy his liabilities for the taxes, penalties and interest arising from the delinquent returns (outstanding tax liabilities). 4 Petitioner subsequently submitted two separate OICs to settle his outstanding tax liabilities. A. The 2004 Offer Petitioner first submitted an OIC in 2004 (2004 offer) to respondent's Houston Offer in Compromise Unit (offer unit). Respondent determined the outstanding tax liabilities at the time petitioner submitted the 2004 offer to be more than $480,000. Petitioner proposed in the 2004 offer to settle his outstanding tax liabilities for $22,000 (which was less than 5% of the outstanding tax liabilities) based on doubt as to collectibility. The offer unit concluded respondent could reasonably collect more from petitioner than petitioner had proposed to pay in the 2004 offer. Accordingly, the offer unit proposed that the 2004 offer be rejected. Petitioner appealed the proposed rejection to the Internal Revenue Service Appeals Office in Houston, Texas (Houston Appeals). Houston Appeals determined that petitioner had received $258,000 from a real estate sale in 2001. Houston Appeals further determined that petitioner used a small portion of the real estate proceeds to pay business expenses and lost the remaining proceeds through high-risk day trading in the stock market. Houston Appeals therefore found that petitioner had dissipated the real estate proceeds with intentional disregard for his outstanding tax liabilities. Houston Appeals included the dissipated real estate proceeds in the calculation of an acceptable offer amount and sustained the offer unit's decision to reject the 2004 offer. B. The 2008 Offer Petitioner next submitted an OIC to the offer unit in 2008 (2008 offer). The 2008 offer proposed settling the outstanding tax liabilities (which exceeded almost one-half million dollars) for $35,196, based on doubt as to collectibility. The offer unit determined that petitioner had failed to demonstrate he was in compliance with his Federal income tax obligations at the time he submitted the 2008 offer. The offer unit returned 5 the 2008 offer to petitioner as unprocessable. Petitioner then exchanged several letters with the offer unit. Petitioner attempted through the letter exchange to have the offer unit reconsider its returning the 2008 offer. To this end, petitioner argued that he was in fact in compliance with his Federal income tax obligations at the time he submitted the 2008 offer. Petitioner also argued in the letter exchange that he should be given the opportunity to become compliant if, in fact, he was not at the time he submitted the 2008 offer. Petitioner continued to make payments during the pendency of the letter exchange consistent with the 2008 offer. The letter exchange ultimately failed, however, to convince the offer unit to alter its decision to return the 2008 offer to petitioner. C. The Collection Due Process Hearing Respondent subsequently issued a final notice of intent to levy (levy notice) for the years at issue. Petitioner timely requested a collection hearing. Settlement Officer Liana A. White (SO White) at Houston Appeals was assigned to conduct the collection hearing. The relevant issues petitioner raised at the collection hearing involved the manner by which respondent had handled the 2004 offer and the 2008 offer. SO White issued the determination notice in late 2011 sustaining the proposed levy action. Petitioner timely filed the petition. Discussion We must now decide whether respondent abused his discretion in sustaining the proposed levy action. We focus on the manner by which respondent addressed the issues petitioner raised during the collection hearing. Petitioner advances two theories to argue respondent abused his discretion. Petitioner first attacks SO White's conclusion that she lacked the authority to reopen the 2008 offer during the collection hearing. See sec. 6330(c)(2)(A)(iii). Petitioner contends that SO White's conclusion lacks a sound basis in fact or law. Petitioner next attacks respondent's rejecting the 2004 offer and returning the 2008 offer. Petitioner makes several related arguments under this theory. The thrust of these arguments is that respondent improperly rejected the 2004 offer and improperly returned the 2008 offer. Petitioner argues that respondent abused his discretion in sustaining the proposed levy action in light of these improprieties. We first address the scope of our jurisdiction because respondent argues we lack jurisdiction. We next address the standard of our review. We then address each of petitioner's theories and its related arguments, in turn. A. Scope of Jurisdiction We now review the scope of our jurisdiction. The Tax Court is a court of limited jurisdiction. Sec. 7442; Naftel v. Commissioner, 85 T.C. 527, 529 (1985). We may exercise jurisdiction only to the extent expressly authorized by Congress. Stewart v. Commissioner, 127 T.C. 109, 112 (2006). Questions of jurisdiction are fundamental and must be addressed whenever it appears this Court may lack jurisdiction.Wheeler's Peachtree Pharmacy, Inc. v. Commissioner, 35 T.C. 177, 179 (1960). We have jurisdiction to determine whether we have jurisdiction. Stewart v. Commissioner, 127 T.C. at 112. Respondent argues this Court lacks jurisdiction because petitioner proposed no new OIC during the collection hearing and the Court therefore has nothing to consider. Respondent also argues this Court lacks jurisdiction because petitioner has no right of judicial review of respondent's rejecting the 2004 offer or returning the 2008 offer. We are perplexed by the arguments that respondent raises as they appear to miss the thrust of the theories petitioner advances. Moreover, it is fundamental that we have jurisdiction in collection matters if the Commissioner issues a determination notice and a taxpayer timely files a petition. See Sego v. Commissioner, 114 T.C. 604 (2000);Goza v. Commissioner, 114 T.C. 176 (2000). Both conditions apply here. Accordingly, we have jurisdiction to review the determination SO White made to sustain the proposed levy action. Sec. 6330(d); Offiler v. Commissioner, 114 T.C. 492, 498 (2000). B. Standard of Review We now focus on the standard we apply in determining whether respondent abused his discretion. Petitioner does not argue the validity of his outstanding tax liabilities. Accordingly, we review the determination sustaining the proposed levy action for abuse of discretion.Sego v. Commissioner, 114 T.C. at 610; Goza v. Commissioner, 114 T.C. at 181-182. We must therefore decide whether respondent acted in a manner that was arbitrary, capricious or without a sound basis in fact or law. Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff'd, 469 F.3d 27 (1st Cir. 2006). C. Authority To Reopen the 2008 Offer We now address petitioner's contention that SO White had the authority to reopen the 2008 offer during the collection hearing. SO White proposed, during the collection hearing, a collection alternative based on petitioner's then-current financial data. Petitioner rejected the collection alternative SO White proposed. Petitioner argued that SO White had to instead reopen the 2008 offer and apply the payments petitioner made during the pendency of his letter exchange with the offer unit toward the 2008 offer. SO White concluded that she lacked authority to reopen the 2008 offer. Petitioner contends SO White's conclusion has no sound basis in fact or law and therefore respondent abused his discretion. Petitioner urges us to so find because reopening the 2008 offer would permit respondent to treat petitioner as having met his payment obligations under the 2008 offer. And doing so would seemingly extinguish his outstanding tax liabilities as he paid the amount he offered to pay in the 2008 offer. This issue of first impression concerns the interaction of sections 7122 and 6330 and the consequences that flow from the Commissioner's rejecting an OIC versus his returning an OIC. We begin by reviewing the authority Congress granted to the Commissioner to compromise unpaid tax liabilities. See sec. 7122. We then turn to whether the Commissioner can exercise this compromise authority in the context of a collection hearing. See sec. 6330. 1. Section 7122 We first look to the Commissioner's authority to compromise an unpaid tax liability. The Commissioner is required to collect all Federal income tax liabilities. Sec. 6301. The Commissioner has discretion, however, to compromise an unpaid tax liability. Sec. 7122(a). The pertinent regulations set forth doubt as to collectibility as one of three grounds for compromising an unpaid tax liability. Sec. 301.7122-1(b)(2), Proced. & Admin. Regs. Doubt as to collectibility exists where a taxpayer's assets and income are less than the taxpayer's unpaid tax liability. Id. 2. Section 6330 We now turn to the Commissioner's exercise of this compromise authority in the context of a collection hearing. A taxpayer has a right to a collection hearing with an Appeals officer before the Commissioner can levy on the taxpayer's property. Sec. 6330. The Appeals officer may consider an OIC proposed during a collection hearing. Sec. 6330(c)(2)(A)(iii). A taxpayer must propose an OIC for it to be considered during the collection hearing. See Sullivan v. Commissioner, T.C. Memo. 2009-4; Godwin v. Commissioner, T.C. Memo. 2003-289, aff'd, 132 Fed. Appx. 785 (11th Cir. 2005). 3. Interaction of Sections 7122 and 6330 We now address whether the Commissioner can be required to reopen an OIC based on doubt as to collectibility that he returned to a taxpayer years before a collection hearing commenced. Petitioner urges us to adopt the theory that respondent can be required to do so. See sec. 6330(c)(2)(A)(iii). We decline to adopt petitioner's theory for two reasons. First, adopting the theory petitioner advances would impermissibly expand the Commissioner's authority to compromise an unpaid tax liability. The Commissioner must evaluate an OIC proposed during a collection hearing according to his authority to compromise an unpaid tax liability. See secs. 6330, 7122; Johnson v. Commissioner, 136 T.C. 475, 484-485 (2011), aff'd, 502 Fed. Appx. 1 (D.C. Cir. 2013). Here, petitioner requested in 2011 that respondent consider the 2008 offer based on doubt as to collectibility. Taxpayers must submit current financial data when proposing an OIC based on doubt as to collectibility. See Sullivan v. Commissioner, T.C. Memo. 2009-4; Godwin v. Commissioner, T.C. Memo. 2003-289. The theory petitioner advances would impermissibly expand the Commissioner's authority by allowing the Commissioner to evaluate an OIC based on doubt as to collectibility using a taxpayer's past financial circumstances. See sec. 7122(d)(1); see, e.g., Internal Revenue Manual (IRM) pt. 5.8.5.3(1) (Oct. 22, 2010) (financial data should be no more than six months old); IRM pt. 5.15.1.1(4) (Oct. 2, 2012) (same). Presently, for example, petitioner's theory would have allowed petitioner to effectively propose an OIC based on doubt as to collectibility in 2011 using his financial data from 2008. Respondent, in turn, would be forced to evaluate the OIC based on doubt as to collectibility using financial data that only by mere chance reflects petitioner's then-current financial circumstances. And second, adopting the theory petitioner advances would substantially interfere with the statutory scheme Congress created. Taxpayers may currently seek administrative review of the Commissioner's rejecting an OIC. Sec. 7122(e). Taxpayers currently have no right, however, to seek review of the Commissioner's returning an OIC. Sec. 301.7122-1(f)(5)(ii), Proced. & Admin. Regs. The theory petitioner advances would, in effect, create additional layers of administrative and judicial review of the Commissioner's returning an OIC before a collection hearing commences. See sec. 6330(d). Petitioner's theory would not create analogous layers of review, however, for the Commissioner's returning an OIC after a collection hearing concludes. See id. Whether a taxpayer may access these new layers of review would therefore depend on when the Commissioner returns an OIC. Petitioner offers no, and we can find no, reasonable explanation for such disparate treatment based only on when the Commissioner returns an OIC. D. Rejecting the 2004 Offer SO White reviewed the account transcripts and other information in respondent's files relating to respondent's rejecting the 2004 offer. SO White determined that Houston Appeals had rejected the 2004 offer based on its finding that petitioner received and dissipated approximately $258,000 from the real estate sale in 2001. SO White determined that Houston Appeals had properly included the dissipated real estate proceeds in the calculation of an acceptable offer amount. SO White further determined that respondent's rejecting the 2004 offer was proper based on a reasoned analysis of the facts before her. Accordingly, respondent did not abuse his discretion in sustaining the proposed levy action in light of his rejecting the 2004 offer. 6 E. Returning the 2008 Offer We now turn to respondent's returning the 2008 offer. The Commissioner has an established policy of requiring taxpayers to be in compliance with current filing and estimated tax payment requirements to be eligible for collection alternatives. See Otto's E-Z Clean Enters., Inc. v. Commissioner, T.C. Memo. 2008-54. Accordingly, the Commissioner does not abuse his discretion by returning an OIC based on a taxpayer's failure to meet current tax obligations. Scharringhausen v. Commissioner, T.C. Memo. 2008-26 (citingChristopher Cross, Inc. v. United States, 461 F.3d 610, 613 (5th Cir. 2006)). SO White reviewed the files and transcripts pertaining to 2007 and 2008. SO White testified, and the record confirms, that petitioner was required to pay an addition to tax for failure to pay estimated tax for 2007. SO White found this addition to tax arose from petitioner's failure to meet his current estimated tax obligations at the time he submitted the 2008 offer for consideration. SO White determined that respondent's returning the 2008 offer was proper based on a reasoned analysis of the facts before her. Accordingly, respondent did not abuse his discretion in sustaining the proposed levy action in light of his returning the 2008 offer. F. Conclusion Petitioner did not raise any other meritorious challenges to SO White's determination to sustain the proposed collection action. Nor did petitioner otherwise introduce any credible evidence or persuasive arguments that would convince us that SO White acted in a manner that was arbitrary, capricious or without a sound basis in fact or law. The record reflects that SO White verified that respondent satisfied all applicable legal and administrative requirements, considered all relevant issues petitioner raised, and balanced the intrusiveness of the proposed collection actions against the need for effective tax collection. See sec. 6330(c). We therefore conclude SO White did not abuse her discretion by sustaining the proposed collection action. We have considered all arguments made in reaching our decision, and, to the extent not mentioned, we conclude that they are moot, irrelevant, or without merit. To reflect the foregoing, Decision will be entered for respondent. Footnotes 1 All section references are to the Internal Revenue Code in effect at all relevant times. 2 This question concerns the interaction of secs. 7122 and 6330 and the consequences that flow from the Commissioner's rejecting an OIC versus his returning an OIC. The Court previously addressed a different question on similar facts. See Lloyd v. Commissioner, T.C. Memo. 2008-15. The Court at first had difficulty deciphering the taxpayer's exact argument in Lloyd. The Court ultimately concluded, however, that the taxpayer in Lloyd was arguing that an Appeals officer abused his discretion in failing to use the taxpayer's reasonable collection potential as calculated in connection with an earlier, returned OIC. Petitioner here, on the other hand, argues respondent abused his discretion by concluding in the determination notice that he lacked the authority to reopen an OIC based on doubt as to collectibility that he had returned to petitioner as unprocessable years before the collection hearing commenced. 3 Petitioner and respondent have stipulated that the years giving rise to the underlying Federal income tax liabilities span 1987 through 2001. We note, however, that each of the OICs petitioner submitted included 1986 as well. The underlying Federal income tax liabilities are not presently at issue. Accordingly, we merely note this discrepancy. 4 The contents of the delinquent returns are not presently at issue. 5 The distinction between a rejected OIC and a returned OIC is important, as we later explain. Briefly, a taxpayer has the right to administratively appeal the Commissioner's rejecting an OIC but has no right to appeal the Commissioner's returning an OIC. 6 Moreover, it appears that petitioner may have been precluded from even raising this issue at the collection hearing in 2011 because it was raised and considered at the administrative hearing on petitioner's appeal of the rejection of the 2004 offer. See sec. 6330(c)(4); Perkins v. Commissioner, 129 T.C. 58, 63 (2007). Respondent does not raise this argument, however, and we therefore need not decide this issue. Back to Top

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Hiring a New York Tax Attorney

There are many reasons to consult a tax attorney, but the main reason is that you do not want to pay more in taxes than you are required.  Tax law is complicated and the Internal Revenue Service will tax advantage of taxpayers who are not represented.

The Internal Revenue Service, or IRS, is the federal agency responsible for the collection of taxes and enforcement of tax laws. They will be the first to contact you if there is a problem with your tax return. The IRS will also contact you if you have been chosen to be audited. Tax attorneys can help you through the audit process, or negotiate a payment of back taxes. Once you have been determined to owe back taxes, fines and penalties will ensue. The IRS can be punitive in their methods and your tax debts will quickly grow. A qualified tax attorney can help settle your case with the IRS, often reducing the fines and penalties.

Because time is of the essence when you are informed of a tax problem, it is imperative that you contact an attorney right away. Not only can fines and interest apply to your debt, your property could be at risk for liens or seizure, or criminal charges could land you in jail. 

Since "taxes" are based on "tax law," a tax attorney is a far better representative than either a CPA or an Enrolled Agent."   And a tax attorney with IRS experience is a better choice than one without IRS experience.

A tax attorney can ensure that your rights are fully protected and that stay well informed of all the options that are available to you. If you are a small business owner, you may want to invest in year-round tax attorney help. Avoiding costly tax errors can save you a lot of unnecessary heartache and potential fines. Even if you employ an accountant, you may want to consider having a tax attorney review your records periodically to ensure you are meeting your obligations. The complexity of the tax system in America means most of us will need some help with our taxes and any follow-up audits or problems. Hiring a tax attorney as soon as you know there is a problem can save you from wasting your time, as well as from fines that can snowball dramatically. The sooner you can get an experienced tax attorney on your side, the better.

A tax attorney is a great ally when up against federal and local tax law. Questions regarding tax law tax can be answered by your tax attorney. Often, if you have a problem with your federal taxes, your state taxes will also be affected. The IRS and your state have constantly changing rules and regulations. A tax attorney stays apprised of these changes and knows how they will apply to you as a taxpayer.

While it may seem expensive to hire a tax attorney, more often than not, you will save money over the long run, either through a reduction of your taxes owed in a back payment situation, or in reducing your tax burden through proper estate planning or business practices. Many people find their tax attorney as essential as their accountant or tax professional.

While it is our civic duty to pay taxes, consultation with a certified tax attorney can help navigate the tax codes to your benefit. You do not need to wait until you have a problem with the IRS to consult a tax attorney.

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New York Offers in compromise

New York State Tax Laws and Regulations,Regulation,New York,Reg. Sec. 5005.1,Offers in Compromise of Fixed and Final Tax Liabilities (Tax Law, Sec. 171)

PRACTICE AND PROCEDURE—REGULATIONS, Title 20 Taxation and Finance, Chapter XIII Compromises, Part 5005 Compromises Under Subdivision Fifteenth of Section 171 of the Tax Law

5005.1(a) 

 “General.” Section 171 subdivision fifteenth, of the Tax Law allows for offers in compromise for any taxes or any warrant or judgment of taxes administered by the Commissioner of Taxation and Finance. Under section 171, subdivision fifteenth, an offer in compromise may only be made where the tax liability has been finally fixed and where the taxpayer has exhausted the taxpayer's protest rights.

5005.1(b) 

 “Grounds for compromise.”

5005.1(b)(1) 

A compromise under this section may only be made where the taxpayer has been discharged in bankruptcy or shown, by proof, to be insolvent. The amount acceptable in compromise cannot be less than the amount the Department of Taxation and Finance could collect through legal proceedings. An offer cannot be accepted because of hardship or any other issue which does not have a direct bearing on the department's legal ability to collect from the taxpayer. In the case of “trust tax liabilities” (“e.g.”, withholding or sales, but not use, taxes), an amount less than the tax, exclusive of penalties and interest, would not normally be acceptable. If, however, upon consideration of all factors, it is apparent that accepting an offer would be in the best interests of all parties, an offer may be accepted for an amount less than the tax as long as the amount offered reasonably reflects collection potential. In addition, with respect to “trust tax liabilities”, a responsible person of the taxpayer may make an offer to compromise such person's liability. A separate appraisal will be made of the ability of such responsible person to pay in determining if an individual offer should be accepted. Acceptance of an offer from one responsible person with respect to “trust tax liabilities” will not relieve any remaining responsible persons—nor the entity itself—from any outstanding balance due on the total liability.

5005.1(b)(2) 

For purposes of paragraph (1) of this subdivision, a taxpayer is “insolvent” where the taxpayer's liabilities exceed the fair market value of the taxpayer's assets. In determining the taxpayer's liabilities, all liabilities will be included, including the amount of the taxpayer's tax debt.

5005.1(b)(3) 

As provided in paragraph (1) of this subdivision, the amount to be offered in compromise must equal or exceed the amount the department would be able to collect, over a period of time, through legal proceedings. Therefore, when evaluating an offer in compromise, the department will consider the legal collection proceedings available to it. Under the Tax Law, where a taxpayer has failed to pay the taxpayer's outstanding tax liabilities, the department may file a tax warrant against the taxpayer with the Department of State and in the appropriate County Clerk's Office. A filed tax warrant is entered in the judgment docket and secures the State of New York as a lienholder of the taxpayer's personal and real property, and empowers the department to use the collection procedures set forth in article 52 of the Civil Practice Law and Rules relating to enforcement of money judgments. These collection procedures may result in, for example, the seizure and sale of the taxpayer's real and personal property, including but not limited to, seizure of money from the taxpayer's bank accounts and seizure of any motor vehicles which the taxpayer may own, or a levy against money that a third party owes the taxpayer, such as a loan or rent owed to the taxpayer. In addition, the department may issue an income execution against the wages of the taxpayer. Under an income execution, the department generally may take up to 10% of the taxpayer's gross wages to satisfy the tax liability.

5005.1(c) 

 “Submission of an offer.”

5005.1(c)(1) 

An offer in compromise must be filed on forms prescribed by the Commissioner of Taxation and Finance for such purpose at the address prescribed in the forms. The forms are available from the Commissioner of Taxation and Finance, or from such person as may be designated by the commissioner, upon request. An offer in compromise should generally be accompanied by a remittance representing the amount of the compromise offer or a deposit if the offer provides for future installments (see paragraph (d)(2) of this section). The compromise offer must be in addition to the total amounts previously paid, or collected, against the tax liability being compromised, if any. If the final payment on an accepted offer is contingent upon the immediate or simultaneous release of a tax lien in whole or in part, such payment must be in cash, or remitted by means, acceptable to the Department of Taxation and Finance, that assures unconditional and final payment, such as certified check, bank check or postal money order. (See paragraph (e)(3) of this section for a refund of remittance where an offer in compromise is not accepted.)

5005.1(c)(2) 

As a condition to accepting an offer in compromise, a taxpayer must submit a statement of financial condition and other information on the forms prescribed by the department for such purpose. Although current financial statements, which have been examined and upon which an opinion has been expressed by an independent licensed public accountant or an independent certified public accountant pursuant to an audit conducted by such accountant, will generally not be required, in some circumstances a taxpayer may be required to submit such statements. The statement of financial condition, and any other information submitted to support an offer in compromise, becomes the property of the department and cannot be returned to the taxpayer. The department may also require, as a condition of approval of an offer:

5005.1(c)(2)(i) 

a signed agreement wherein the taxpayer agrees to pay over a fixed percentage of the taxpayer's future earnings or other income for a specific period of time;

5005.1(c)(2)(ii) 

where an offer is to be satisfied through periodic payments as provided in paragraph (3) of subdivision (d) of this section, collateral or other security pledged over the life of the installment payments; or

5005.1(c)(2)(iii) 

anything else deemed necessary given the facts of the case and the taxpayer's circumstances.

5005.1(c)(3) 

No offer in compromise shall be accepted unless the taxpayer:

5005.1(c)(3)(i) 

agrees that the Commissioner shall keep all payments, funds collected and other credits made to the liability for the periods covered by the offer, and all amounts to which the taxpayer may be entitled under the Tax Law, due through overpayments of any tax or other liability, including interest and penalties, for periods ending before or within or as of the end of the calendar year in which the offer is accepted (and which are not in excess of the difference between the liability sought to be compromised and the amount offered);

5005.1(c)(3)(ii) 

agrees to immediately return to the department any refunds of overpayments referred to in subparagraph (i) of this paragraph received by the taxpayer after the taxpayer's offer was filed;

5005.1(c)(3)(iii) 

agrees to not contest in court or otherwise, the amount of the liability sought to be compromised;

5005.1(c)(3)(iv) 

waives the running of the statutory period of limitations on collection of the tax liability involved for; the period during which the offer is pending; the period during which any installment remains unpaid; and for one year thereafter;

5005.1(c)(3)(v) 

agrees to comply with all provisions of the New York State Tax Law relating to filing of returns and paying required taxes for all returns required to be filed in the five year period beginning with the date of the acceptance of the offer; and

5005.1(c)(3)(vi) 

is in compliance with all New York State tax filing and payment requirements for periods not covered in the offer.

In addition, the department may require the taxpayer to agree to any other conditions which may be necessary to effectuate a just offer in compromise.

5005.1(c)(4) 

The taxpayer must make a good faith offer. Generally, taking into account the reason for denial, once an offer has been denied, another offer may be reconsidered only upon a showing of a material change in circumstances or if there is a meaningful increase in the offer. Additionally, the department may reconsider an offer that was previously denied due to a misinterpretation or a misunderstanding on the part of the department of the information contained in such offer. The Tax Compliance Division will work, to the extent possible, with the taxpayer to try to effectuate a compromise likely to be accepted by the Commissioner.

5005.1(c)(5) 

The filing of an offer in compromise shall not automatically operate to stay the collection of any tax liability. However, enforcement of collection may be deferred if the interests of the department shall not be jeopardized thereby.

5005.1(d) 

 “Review of an offer.”

5005.1(d)(1) 

5005.1(d)(1)(i) 

The commissioner, or such person as may be designated by the commissioner, will accept or reject the offer in compromise and the department will promptly notify the taxpayer in writing of such action.

5005.1(d)(1)(ii) 

Where the tax amount (exclusive of penalty and interest) to be compromised is more than $100,000, the offer accepted by the commissioner, or such person as may be designated by the commissioner, must be referred to a justice of the Supreme Court for approval prior to notification of acceptance by the commissioner, or such person as may be designated by the commissioner. Such an offer is not effective until approved by a justice of the Supreme Court.

5005.1(d)(2) 

Generally, within 60 days of notification of final approval of an offer, full payment of the compromised amounts must be made to the department. However, where a taxpayer can demonstrate the need for periodic payments over a period of time, the department has the authority to grant a reasonable period of time for repayment of an offer not to exceed two years. Where special circumstances are demonstrated, the two-year period may be extended at the discretion of the commissioner or such person as may be designated by the commissioner. In the case of periodic payments, interest will be due at the annual rate established under the Tax Law on any deferred amounts of the offer from the date of notice of acceptance until the offer is paid in full.

5005.1(d)(3) 

Where an offer in compromise is accepted, a record with respect to such offer will be placed on file in the office of the Commissioner of Taxation and Finance. The record will include a statement of:

5005.1(d)(3)(i) 

the amount of tax and any other issues which may be the subject of the compromise;

5005.1(d)(3)(ii) 

the amount of interest, additions to the tax or penalties imposed on the taxpayer; and

5005.1(d)(3)(iii) 

the amount actually paid or required to be paid in accordance with the terms of the compromise.

5005.1(d)(4) 

No liability will be considered compromised nor any warrant satisfied until all obligations of the taxpayer under the compromise agreement are performed.

5005.1(e) 

 “Withdrawal or rejection.”

5005.1(e)(1) 

An offer in compromise may be withdrawn by the taxpayer making the offer at any time prior to its acceptance. Further, the department may hold an offer made by the taxpayer in abeyance if the application and any other required information/documentation are not complete. In such a case, the taxpayer will ordinarily have 30 days after notification from the department in which to submit the information required to complete the application and/or any other forms, unless the taxpayer can demonstrate to the satisfaction of the department that more time will be needed. If the required information is not timely submitted to the department, the offer in compromise will be deemed to be formally withdrawn.

5005.1(e)(2) 

5005.1(e)(2)(i) 

The department may reject an offer in compromise. The following exemplify reasons for rejecting an offer in compromise:

5005.1(e)(2)(i)(a) 

failure to meet the statutory requirements (“e.g.”, the taxpayer has not been discharged in bankruptcy or is not insolvent and/or the department can collect more through legal proceedings than the amount being offered in compromise);

5005.1(e)(2)(i)(b) 

making a frivolous offer or filing an offer for the purpose of delaying the collection of tax liabilities;

5005.1(e)(2)(i)(c) 

failure to verify financial information, where required;

5005.1(e)(2)(i)(d) 

failure to make full financial disclosure (“e.g.”, not fully disclosing all assets or income);

5005.1(e)(2)(i)(e) 

where there is evidence of conveyance of assets for less than fair market value;

5005.1(e)(2)(i)(f) 

for public policy considerations;

5005.1(e)(2)(i)(g) 

where the taxpayer has not demonstrated a good faith effort to repay/resolve the tax debt (“i.e.”, where the taxpayer has displayed a wanton disregard for the tax debt over an extended period of time and disposed of significant assets and other holdings); or

5005.1(e)(2)(i)(h) 

where the tax liability sought to be compromised directly relates to any crime for which the taxpayer has been convicted.

5005.1(e)(2)(ii) 

The causes for rejection of an offer in compromise set forth in subparagraph (i) of this paragraph are not all-inclusive nor should any one cause be interpreted as restricting or otherwise limiting the department's discretion with respect to other causes.

5005.1(e)(3) 

Receiving acceptance of an offer in compromise is a privilege, not a right, available to financially distressed taxpayers in order to put overwhelming tax liabilities behind them. In the event an offer is rejected, the taxpayer making the offer shall be promptly notified in writing. If an offer incompromise is withdrawn or rejected, the amount tendered with the offer shall be refunded without interest, unless the taxpayer has stated or agreed that the amount tendered may be applied to the liability with respect to which the offer was filed.

5005.1(f) 

 “Defaults.” Where a taxpayer does not comply with the conditions of the taxpayer's offer in compromise (including any requirements with respect to collateral agreements) as accepted by the department, or where there is evidence of a substantial misrepresentation of a material fact subsequent to the acceptance of the offer by the department, the department may reimpose the full tax liability (including all applicable interest and penalties), apply all amounts previously deposited under the offer against the amount of the liability sought to be compromised, and proceed to collect the balance of the original liability.

(Adopted June 30, 1999; amended October 5, 2005.)

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