Academic journal article Journal of Accountancy

IRS Gets New, More Flexible Guidelines on Offers in Compromise

Academic journal article Journal of Accountancy

IRS Gets New, More Flexible Guidelines on Offers in Compromise

Article excerpt

Internal Revenue Code section 7122 gives the Internal Revenue Service the authority to settle a criminal or civil case with a taxpayer through offers-in-compromise procedures. The authority extends only to tax liabilities that have been assessed but not referred to the Justice Department.

The IRS will compromise civil liabilities on grounds of doubt about either liability or collectibility. The taxpayer must submit an offer on form 656 and provide financial information on form 433-A (individuals) or form 433-B (businesses) if the compromise basis is collectibility. The IRS then either accepts or rejects the offer.

In the past, the IRS rejected most compromise offers on the basis of public policy. The few that were accepted were in danger of terminating if the taxpayer's financial problems worsened and he or she could not live up to the collateral payment agreement on which the compromise depended.

According to an IRS spokesperson, more taxpayers now will be able to compromise their tax liabilities under the IRS's new policy, which became effective under manual transmittal 5700-34, amending the Internal Revenue Manual.

Here are the new policy's highlights:

* Acceptance of offers in compromise is encouraged.

* Revenue officers are instructed to discuss offers with taxpayers and, if necessary, help them complete the forms. …

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