New offer-in-compromise plan assists taxpayers in economic hardship.

• Author: Goldstein, Robert L.
• Position: IRS plan

As of Oct. 4, 1999, the IRS is accepting applications for a new type of offer-in-compromise plan that permits taxpayers facing severe or unusual economic hardship to settle their tax debts for less than the full amount owed.

Temp. Regs. Sec. 301.7122-1T reflects the amendment of Sec. 7122 by Section 3462 of the Internal Revenue Service Restructuring and Reform Act of 1998 (IRSRRA '98). Current Regs. Sec. 301.7122-1 allows the Service to compromise a tax liability only on the grounds of doubt as to liability or collectibility, or both. Prior to the IRSRRA '98, while Sec. 7122 did not explicitly limit the Service's authority to compromise, Kegs. Sec. 301.7122-1 specifically authorized it. The principal source of the limitation is the 1933 opinion of Attorney General Cummings, which was issued in response to an inquiry from the then acting Secretary of the Treasury.

Attorney General Cummings opined "there is much to be said for the proposition that a liberal rule should exist, but my opinion is that if such a course is to be taken it should be at the instance of Congress. It concluded that where liability has been established by a valid judgement or is certain, and there is no doubt as to the ability of the Government to collect, there is no room for `mutual concessions' and therefore no basis for compromise" (Op. Atty. Gen. 6, XIII-47-7138 (10/24/33)); see also Op. Atty. Gen. 7, XIII-47-7140 (10/2/34), in which Attorney General Cummings stated "there appears to be no statutory authority to compromise solely upon the ground that a hard case is presented, which excites sympathy or is merely appealing from the standpoint of equity, but the power to compromise clearly authorizes the settlement of any case about Which uncertainty exists as to liability or collection"

Implementing the policy, the IRS concluded that an offer in compromise, based on doubt as to collectibility, should be accepted when the amount offered was the maximum amount that the taxpayer could pay, considering net equity in assets and both current and future income. This has been the guiding principle for the past 65 years.

In the IRSRRA '98, Congress directed the Service to consider factors other than doubt as to collectibility and liability. Enactment of Sec. 7122(c) mandated the IRS to consider such factors as equity and hardship (and favorable public policy), if it would promote effective tax administration. The Conference Committee report indicated that the Service was to...