Volume 19 Issue 3 -- May/June 2007
the last issue, we began to look at the IRS’s new
rules for Offers in Compromise (OICs). This time we will look at some other
aspects of OIC procedure.
7122 of the Internal Revenue Code is short, succinct, and very broad. It gives
the IRS Commissioner authority to compromise any civil or criminal case at any
time. These powers are incredibly broad and allow the IRS to supersede the
authority of all U.S. Courts. The new OIC rules, however, appear to deviate from
the statutory authority in several respects.
many years, the IRS has taken the position that one cannot receive a refund, if
one is possible, in conjunction with an OIC. There is no authority for this IRS
position but the IRS continues to state that would-be OIC applicants cannot
receive a refund via an OIC.
new OIC forms also deviate from basic statutory authority in that the IRS has
taken the position that you cannot submit an OIC based on doubt as to liability
and doubt as to collectibility at the same time. This position is absurd because
there are many situations in which taxpayers have issues that relate to doubt as
to liability (meaning the tax is not owed) and doubt as to collectibility (the
ability to pay).
the instructions to the new Form 656-L (Doubt as to Liability) engage in
circular reasoning that is akin to
instructions then suggest that one look to the “Alternatives.” All of these
alternatives, at the bottom of page 1 of the instructions, direct a would-be OIC
applicant away from using the new OIC Liability Form 656-L. It seems the IRS is
taking the fundamentally flawed position that doubt as to liability exists only
if the tax liability is incorrectly computed.
will be interesting to see if the regulations, whenever they are issued, agree
with the positions in the instructions to Form 656-L, although for some time,
the IRS has taken the position that doubt as to liability must mean there is
doubt as to the “correct” amount of tax, as opposed to whether there is any
filing fee for an OIC based on doubt as to collectibility or effective tax
administration is $150, plus whatever payments are required by the OIC. In
addition, estimated tax payments for current tax liabilities must be maintained
and, of course, all tax returns must be filed on a timely basis while the OIC is
pending and, if accepted, while it is being paid or for five years, whichever is
the OIC gates will be substantially closed by the new requirements that payments
be made with the submission of an OIC, it is anticipated that the activity
surrounding the OIC program will be substantially reduced.
there will be many poor people who will not be able to submit OICs because they
cannot afford the initial payment requirements. To facilitate such hard luck
cases, there are exceptions to the payment of the $150 filing fee and the 20%
down payment on a lump sum OIC, provided the taxpayer qualifies under the IRS
OIC Low Income Guidelines.
new IRS forms have a third-party designee section, in which it is possible to
designate the names of one or more third-parties with whom the IRS can discuss
the OIC. In the instructions, it states that the IRS may contact third-parties
in order to respond to the OIC request, and the taxpayer, by signing the OIC
form, authorizes the IRS to make such contacts.
is unclear from the seemingly conflicting instructions whether the IRS is being
authorized to contact all third-parties or only those designated on Form 656 or
656-L. The ambiguous language could be interpreted in several different ways.
tax administration” allows the IRS to consider exceptional circumstances that
would make it unfair or inequitable for an OIC not to be accepted. Based on our
experience, it is hard to imagine the circumstances under which the IRS would
exercise its authority in a manner which would be conducive to accepting an OIC
under the criteria of effective tax administration.
thing is certain, there will be far fewer OICs submitted, and those submitted
will probably require family members or others to chip in to satisfy the
financial requirements of the new guidelines.
If you are contemplating submitting an OIC and need assistance, you may want to contact Tax and Business Professionals.
expanded discussion of Offers In Compromise under the New Rules is available by clicking
By Tax and Business Professionals, Inc.
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