Isley and IRS Appeals cannot work it on out.

• Author: Beavers, James A.
• Position: Offers in compromise must be referred to the Dept. of Justice

The Tax Court held that IRS Appeals could not unilaterally accept an offer in compromise (OIC) proposed by Ronald Isley, vocalist and founding member of the Isley Brothers, because the OIC covered liabilities related to a case that had been referred to the Department of Justice (DOJ) for prosecution.

Background

Isley has been the lead vocalist of the Isley Brothers throughout the group's long and successful history, which began in the '50s. From 1959 to 2006, the group, in its various lineups, had numerous hits in the rock, R&B, soul, and funk genres. The group has sold millions of singles and albums and in 1992 was inducted into the Rock and Roll Hall of Fame. In addition to singing for the group, Isley co-wrote many of its songs.

Unfortunately, Isley was much less successful throughout the years at managing the considerable amount of money he earned and paying taxes on that income than he was at singing and songwriting. lsley filed for bankruptcy twice, once in New Jersey in 1984 and once in California in 1997. The IRS filed proofs of claim in both of these bankruptcy cases, and, as a result, the IRS was able to collect a substantial amount of the income tax Isley owed.

After the second bankruptcy, Isley did not get any better about paying his taxes, which led to even greater problems. Isley was prosecuted and convicted for tax evasion and willful failure to file with respect to 1997-2002 (the conviction years). This resulted in a federal district court's issuing on Sept. 1, 2006, a judgment and probation commitment order (JPC order) sentencing Isley to 37 months in prison followed by a three-year probationary period, during which he was required to pay his tax liabilities for the conviction years and to truthfully and timely file tax returns and pay taxes for the probation years.

The IRS later issued Isley two notices of federal tax lien (NFTLs) and two notices of levy that together covered his assessed liabilities for the conviction years plus 2003, 2004, and 2006. Isley requested a Collection Due Process (CDP) hearing, which resulted in his tender of--and the IRS Appeals Office's preliminary acceptance of--an OIC. The Appeals officer assigned to his case referred the OIC to an attorney in the IRS's Office of Chief Counsel (OCC), for review.

The OCC attorney who reviewed the OIC was already familiar with Isley's tax history from his work on the IRS's proof of claim in Isley's second bankruptcy case. He recommended that the Appeals...