Offer in Compromise

IRC Section 7122(f) Deemed Acceptance review

The United States Tax Court in Michael D. Brown v. Comm’r of Internal Revenue, at 158 T.C. No. 9, filed on June 23, 2022 ruled that the time during which the IRS Appeals Office reviews the return of an Offer in Compromise is not included as part of the 24-month “deemed acceptance” period of IRC 7122(f).  The rule at issue states that “[a]ny offer-in-compromise submitted under this section shall be deemed to be accepted by the Secretary if such offer is not rejected by the Secretary before the date which is 24 months after the date of the submission of the offer.”  See IRC section 7122(f).  In this case, taxpayer filed for a Collection Due Process (CDP) hearing after the filing of a tax lien.  Right away, the taxpayer filed for an Offer through IRS Appeals.  The collection specialist that reviewed his file returned the Offer because other investigations of the taxpayer were pending. He owed about $50 million in taxes.  During the actual CDP hearing, the taxpayer urged the Settlement Officer to override this decision.  The Settlement Officer would not do it and proceeded to close the CDP case.  It was approximately 28 months from the time the CDP hearing was filed until the IRS issued a notice of determination.  Taxpayer argued that the IRS exceeded the rule for deemed acceptance and the Offer should be accepted.  The Court analyzed the statute and regulations associated with it.  In part, the taxpayer tried to argue that even though the Offer unit “returned,” the Offer, it was only Appeals that can make the determination to return the Offer. As such, it should be deemed accepted.  The Court didn’t buy it. Rather, they point out that the relevant procedures explaining the deemed accepted provision specifically state that the “period during which the IRS Office of Appeals considers a rejected offer-in-compromise is not included as part of the 24-month period.” The Court explained that this would be true even outside of the CDP setting. In other words, if an Offer is rejected and a taxpayer Appeals that rejection, nothing about the Appeal extends the 24-month period in the rule.