IRS abused discretion by not considering taxpayer's offer-in-compromise.

AuthorBeavers, James A.
Position2013 Tax Court memorandum decision in Szekely v. Commissioner

The Tax Court held that the IRS had abused its discretion by closing a taxpayer's case one day after a deadline passed for him to furnish certain documents related to his proposed offer-in-compromise.

Background

Thomas Szekely is a self-employed engineer. He filed income tax returns for 2006, 2007, 2008, 2009, and 2010 reporting his tax liability for each year. However, he failed to make the required estimated tax payments for these years, and he did not remit with any of his returns the balance of tax due. He also had unsatisfied tax liabilities stemming from the 2004 and 2005 tax years. After filing his 2006-10 returns, he paid his 2004 and 2005 tax debts, and he met his quarterly estimated tax obligations for 2011 as he incurred them. Unable to pay the rest of his outstanding tax liability, Szekely sought, with the assistance of the Taxpayer Advocate Service, to negotiate a settlement with the IRS, but he and the IRS were unable to reach an agreement.

On Sept. 2, 2011, the IRS filed a notice of federal tax lien against Szekely's property and rights to property to assist in the collection of his $64,541 tax debt for tax years 2006-10. On Sept. 8,2011, the IRS mailed Szekely notice of this filing, which informed him of his right to request a Collection Due Process (CDP) hearing. He timely submitted a request for a CDP hearing.

Four months passed before Szekely received any response from the IRS to his request for a CDP hearing. Finally, by letter dated Feb. 3, 2012, a settlement officer (SO) from the IRS Appeals office acknowledged receipt of his hearing request and notified him that she had scheduled a telephone CDP hearing for Feb. 23, 2012. In the letter, the SO informed Szekely that, if he wished her to consider an offer-in-compromise (01C) or other collection alternative, he should submit, before the scheduled CDP hearing, a completed Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, together with supporting documentation and three months of bank statements. The letter made clear that she could not consider collection alternatives without receiving these documents. The SO gave Szekely 14 days from the date of her letter to provide the required information. He complied with the SO's request and submitted all of the required documentation by letter dated Feb. 12, 2012.

On Feb. 23, 2012, Szekely and the SO had the telephone CDP hearing. During that call, Szekely did not dispute the propriety of...

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