Academic journal article Journal of Accountancy

Offers in Compromise

Academic journal article Journal of Accountancy

Offers in Compromise

Article excerpt

Taxpayers unable to pay their income tax liability may make an offer in compromise under IRC section 7122 to settle the tax bill. Such an offer can, however, have a negative impact on other rights available to taxpayers, as the Tax Court recently demonstrated.

On September 3, 1999, Joseph Dutton filed a request for innocent spouse relief for tax years 1984 to 1986. On April 24, 2001, he filed Form 656, Offer in Compromise, for tax years 1986, 1987 and 1993 to 1999. On May 7, 2001, the IRS sent Dutton a letter granting partial relief from joint and several liability under IRC section 6015(c) for 1986 and 1987. The letter said he could receive a refund of taxes he had paid for those years. Dutton's attorney received a second letter from the IRS dated July 23, 2001, stating no refund was permitted if the IRS granted relief under section 6015(c)--contrary to the implication in the first letter.

On July 25, 2001, the IRS accepted Dutton's offer in compromise. On August 12, 2002, it notified Dutton he was riot entitled to relief from joint and several liability under sections 6013(c), 6015(b), (c) and (f) for 1986 and 1987. Dutton filed suit in Tax Court requesting that relief and asking for the previously accepted offer in compromise to be set aside so he could receive a refund. The IRS said the court should not set aside the offer and Dutton was not entitled to relief from liability.

Result. For the IRS. The court immediately dismissed the taxpayer's request for relief under section 6013. Since the petition listed only section 6015, the court could not grant relief under section 6013. The court next turned to the issue of setting aside the offer in compromise.

Section 6015(g) says a taxpayer will receive a refund--where appropriate--if the IRS grants relief from joint and several liability under section 6015 unless IRC sections 6511, 6512(b), 7121 and 7122 apply. …

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