- Instructor: Attorney Bob Schaller
- Lectures: 6
- Quizzes: 1
IRS’ Authority, Motivation & Basis to Eliminate Back-Taxes.
An Offer in Compromise is an agreement between a taxpayer and the IRS that settles a tax liability for payment of less than the full amount owed. IRM § 18.104.22.168.1 (09-23-2008); Adamowicz v. US, 08-888C, Pg. 5 (D.C. Ct. Fed. Cl. 11/21/2011). Together, 26 U.S.C. § 7122 (Offer in Compromise) and 26 U.S.C. § 7121 (closing agreements) and their regulations comprise the exclusive framework for the IRS and taxpayers to settle tax liability. Benson v. US, 120 F.3d 270, 270 (10th Cir. 1993); Adamowicz v. US, 08-888C, Pg. 4 (D.C. Ct. Fed. Cl. 11/21/2011); see also Botany Worsted Mills v. US, 278 U.S. 282, 288-89 (1929) (“We think that Congress intended … to prescribe the exclusive method by which tax cases could be compromised.”).
The Secretary of the Treasury is granted broad authority by Congress to compromise back-taxes pursuant to 26 U.S.C. § 7122. McGee v. USA, 566 F.Supp. 960, 961 (M.D. Fla. 1982). The Secretary of the Treasury has in turn delegated this authority to compromise back-taxes to the Commissioner of the Internal Revenue Service pursuant to Treasury Regulations 26 C.F.R. § 301.7122-1 and 26 C.F.R. § 301.7701-9. The Secretary of the Treasury has delegated authority to the IRS Commissioner to “accept,” “reject,” “return,” “terminate,” or “withdraw” a taxpayer’s offer to compromise back-taxes. Delegation Order No. 5-1. IRM § 22.214.171.124 (06-05-2018); IRM § 126.96.36.199.2 (05-05-2017). The Commissioner has in turn delegated this authority to compromise to District Directors, the Director and Assistant Director of Appeals, Chiefs and Associate Chiefs, and Appeals Offices in cases in which the liability is less than $100,000. McGee v. USA, 566 F.Supp. 960, 961 (M.D. Fla. 1982); see Johnson v. Commission of Internal Revenue, 136 T.C. 475, 485 (2011) (a settlement agreement may be reached only by authorized agents or officials; persons dealing with an agent of the government must take notice of the agent’s limitations).
The decision to accept or reject an offer to compromise is within the IRS’ discretion and must be based upon consideration of all the facts and circumstances. 26 C.F.R. § 301.7122-1(c)(1); Johnson v. Commission of Internal Revenue, 136 T.C. 475, 485 (2011); Christopher Cross, Inc. v. US, 363 F.Supp.2d 855, 857 (E.D. La. 2004); Rev. Proc. 2003-71, § 6.03.
An Offer in Compromise (referred to as an offer or OIC) is a way for the IRS to recoup a portion of the monies owed by a taxpayer unable to pay the back-taxes in full. IRM § 188.8.131.52.1 (01-18-2018). An offer is submitted by a taxpayer to the IRS for consideration and evaluated based on its processability, the taxpayer’s ability to pay, and the taxpayer’s foreseeable future earnings. During the offer investigation, the taxpayer’s individual circumstances are evaluated, and the IRS will make a determination for disposition to either accept, return, reject, withdraw, or terminate the offer. IRM § 184.108.40.206.1 (01-18-2018).
There are four main objectives to the Offer in Compromise program. IRM § 220.127.116.11.4 (09-23-2008). First, the IRS seeks to collect what can reasonably be collected at the earliest possible time and at the least cost to the government. Second, the IRS wants to achieve a resolution that is in the best interest of both the individual taxpayer and the government. Third, the IRS provides a “fresh start” toward future voluntary compliance with all filing and payment requirements. Fourth, the IRS seeks to secure collection of revenue that may not be collected through any other means.
The IRS is authorized to accept a taxpayer’s Offer in Compromise and compromise back-taxes under three grounds. Each ground is outlined in the following lessons.
Doubt as to Collectibility Offers
Effective Tax Administration Offers
Doubt as to Liability Offers
Automatic Acceptance of Offer
Tax LawAn Offer in Compromise is an agreement between a taxpayer and the IRS that settles a tax liability for payment of less than the full amount owed. This course explains the IRS' authority to settle tax liability.