Bankruptcy and OICs.

• Author: Laffie, Lesli S.
• Position: Court Decisions

According to a Georgia district court in William K. Holmes, MD GA, 3/16/04, the bankruptcy court acted within its jurisdiction in issuing an order directing the IRS to consider a debtor's offer-in-compromise (OIC), notwithstanding its policy against considering OICs from persons involved in pending bankruptcy proceedings.

Facts: William K. Holmes, a debtor, owned approximately 3.2 million shares of WorldCom stock in 2000, which, at one time, had a value of about $200 million. As WorldCom began to show signs of financial difficulty, the debtor's stockbroker sold his shares as they decreased in value to meet margin calls.

Although the sale triggered capital gain with accompanying tax liabilities, the debtor did not receive sales proceeds, because they went directly to pay margin debt. On July 1, 2002, the debtor filed a Chapter 11 bankruptcy petition.

The IRS filed a proof of claim that included a priority claim for $9,372,245 in income tax and interest and a $920,462 general unsecured claim for penalties. The debtor submitted an OIC to the IRS for $621,326, which it rejected; it would not process the offer because it does not consider OICs from persons involved in pending bankruptcy proceedings.

The debtor then filed a motion in bankruptcy court to determine tax liability and to object to the IRS's claim. He sought an order requiring the IRS to consider his OIC, arguing that 11 USC Section 525 prohibits discriminatory treatment, including the denial...