Settlement Officer | Caraker Law Firm, P.C.

IRC 6159

The Tax Court held that an IRS Settlement Officer did not abuse her discretion in sustaining collection action against a taxpayer in Michael J. Stevens and Alexis M. Stevens v. Comm’r of Internal Revenue, Docket No. 15761-21L, filed July 24, 2023. The IRS filed notices of intent to levy against the taxpayers for tax years 2015 and 2016 to collect over $100,000 owed in income taxes. As a result, the taxpayers requested a Collection Due Process hearing. During the course of the hearing, the Settlement Officer explained to the taxpayers that she would need a Collection Information Statement disclosing assets, income and expenses, in order to entertain an installment agreement or Offer in Compromise. While the taxpayers attended the hearing, they never provided complete financials. Rather, they provided an incomplete financial with little supporting documentation that showed they could pay $93 per month. The IRS then used information they had to make adjustments to the financials, which ultimately showed the taxpayers could pay $746 per month. This was offered as an installment agreement a couple of times, but the taxpayers refused to accept it or respond with more documentation to support their proposal. IRC Section 6159 authorizes the Secretary of the Treasury to enter into a written agreement to pay tax in installments if it determines it will ultimately facilitate collection of the liability. The IRS generally has discretion to accept or reject an installment agreement proposal. The Court ruled there was no abuse of discretion by the IRS since the Settlement Officer based many of her calculations on IRS standardized expenses and income on tax returns and a paystub that was provided by the taxpayers.

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.