The IRS Can Make Offers in
Compromise
IRC
Section 7122
authorizes the Internal Revenue
Service to compromise any civil or criminal case arising under the
internal
revenue laws unless it has been referred to the Department of Justice
for
prosecution or defense. The Internal Revenue Service may compromise any
tax controversy when there is doubt as to tax liability or
collectibility. Additionally, the IRS may accept a compromise
in the best interest of the government.
Compromise results in taxpayer paying less than asserted liability and
closes taxpayer's entire tax liability for covered period. A compromise
may be set aside in limited circumstances.
What is an Offer in Compromise
A compromise is a particular
type of settlement of a tax
controversy. Compromises usually take place at the collection
stage. They are agreements between the Internal Revenue Service and a
taxpayer
allowing the taxpayer to pay the government less in taxes than his
asserted
tax liability. Compromises are governed by the rules applicable to
contracts.
Grounds for an Offer in
Compromise
The Internal Revenue Service
has complete discretion whether
to enter into a compromise, and will entertain an offer in compromise
only
if it is based on one or both of the following grounds:
- doubt as to the taxpayer's liability
for the tax;
- doubt as to the collectibility of
the
tax.
- in the best interest
of the government
Most compromises allow a
taxpayer to pay the government
less in taxes than owed, and are based on the taxpayer's
inability
to pay the admitted tax liability (including penalties and
interest).
Covers All Tax Matters
A compromise is generally not
limited to one issue
or transaction. Rather, a compromise is deemed to close the taxpayer's
entire tax liability for the period covered, including liability for
taxes,
penalties, and interest. Thus, compromise as to part of a tax
liability
(a penalty, for example) may have the result of foreclosing the right
to
dispute other parts of the tax liability.
