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IRS gets new, more flexible guidelines on offers in compromise.

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.

* Only district directors can reject an offer based on public policy after full documentation of the reasons.

* Forms 656, 433-A and 433-B have been simplified.

* Collateral payment agreements need no longer always be executed. The IRS can now accept a payment of the discounted present value of the taxpayer's potential earnings.

* Guidance on acceptable amounts is provided. For example, in the case of jointly held assets, revenue officers can accept an offer if the taxpayer pledges at least 20% of the equity in these otherwise nonleviable assets.

Note: The spokesperson said because many practitioners heard about the new policy in March 1992, before most IRS employees received the specifics, taxpayers whose recent offers seem to meet the new guidelines may have been rejected. These taxpayers are urged to file an administrative appeal. Further, taxpayers who had offers pending before the new rules were issued should ask the revenue officer involved to review the case.

The new guidelines provide streamlined procedures for coming to a decision on offers and for simpler investigative techniques. The spokesperson says a taxpayer can now expect to receive an answer to an offer within six months.
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Publication:Journal of Accountancy
Date:Aug 1, 1992
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