TaxEsq
|
|
|
Ronald J. Cappuccio, J.D., LL.M.(Tax)
Counsellor at Law
|
1800 Chapel Avenue West
Suite 128
Cherry Hill, New Jersey 08002 USA
(856) 665-2121
Fax (856) 665-9005
E-mail: Ron@TaxEsq.com
|
|
The IRS Can Make Offers in Compromise
IRC Section 7122 authorizes the Internal Revenue
Service to compromise any civil or criminal case arising under the internal
revenue laws unless it has been referred to the Department of Justice for
prosecution or defense. The Internal Revenue Service may compromise any
tax controversy when there is doubt as to tax liability or collectibility.
Compromise results in taxpayer paying less than asserted liability and
closes taxpayer's entire tax liability for covered period. A compromise
may be set aside in limited circumstances.
What is an Offer in Compromise
A compromise is a particular type of settlement of a tax
controversy. Compromises usually take place at the collection
stage. They are agreements between the Internal Revenue Service and a taxpayer
allowing the taxpayer to pay the government less in taxes than the asserted
tax liability. Compromises are governed by the rules applicable to contracts.
Grounds for an Offer in Compromise
The Internal Revenue Service has complete discretion whether
to enter into a compromise, and will entertain an offer in compromise only
if it is based on one or both of the following grounds:
- doubt as to the taxpayer's liability
for the tax
- doubt as to the collectibility of the
tax. .
Most compromises allow a taxpayer to pay the government
less in taxes than owed, and are based on the taxpayer's inability
to pay the admitted tax liability (including penalties and interest).
Covers All Tax Matters
A compromise is generally not limited to one issue
or transaction. Rather, a compromise is deemed to close the taxpayer's
entire tax liability for the period covered, including liability for taxes,
penalties, and interest. Thus, compromise as to part of a tax liability
(a penalty, for example) may have the result of foreclosing the right to
dispute other parts of the tax liability.
Procedure for an Offer in Compromise
An offer to enter into a compromise agreement
is called an Offer in Compromise. Offers generally
are made by the taxpayer and must be made on Form 656. In addition to the
form, a written position statement is usually included to bolster the taxpayer's
arguments. As part of the offer in compromise, taxpayers are required to
waive the benefit of the statute of limitations on assessment or collection
of the tax, thereby affording the Internal Revenue Service time to review the offer. This
gives the IRS more time to collect the taxes if the Offer is rejected. Remittance of the amount offered in the propsed compromise, or a deposit
if the offer is to pay in installments, must also accompany the offer.
Form 433A/433B - For offers based on inability
to pay, taxpayers must submit a statement of financial condition (Form
433A - individuals or Form 433B - businesses) to enable the Internal Revenue
Service to analyze the taxpayer's ability to pay. The Internal Revenue
Service will require that the amount offered reflect the maximum amount
collectible from the taxpayer's current income and assets, and may also
require, as additional consideration for entering the agreement, that the
taxpayer execute one or more collateral agreements to secure additional
payment from his future income or to provide that the taxpayer forgo certain
other tax benefits.
Enforceability of a Compromise
After an offer is accepted by the Internal Revenue Service
official who has been delegated the authority to do so, the agreement is
binding and is enforceable as a contract, according to its terms. Neither
party may reopen a compromised case. The only grounds upon which a compromise
can be set aside are:
- mutual mistake of fact as to the agreement
- falsification or concealmentof assets by the taxpayer
- grounds sufficient to set aside a contract generally.
A requirement of an accepted compromise is that the
taxpayer timely file and timely pay all required tax returns
for a period of 5 years. If the taxpayer files late or pays late,
the IRS can void the compromise agreement.
Search Our Site
This page
is designed for any resolution, but looks best in 800x600 or greater.
This page is designed and maintained by Ronald J. Cappuccio.
© Copyright 1996-2001 All Rights Reserved Ronald J. Cappuccio, J.D., LL.M.(Tax), All Rights Reserved.
Go to Our New EBusinessEsq Web Site
|
