Here comes Larry Anderson. He is 74 years old and a cancer patient. In 2001, Larry (the petitioner) was convicted of criminal tax evasion under IRC § 7201 for his 1991 tax return. In addition he willfully made false or fraudulent statements under IRC § 7206(1) with respect to his 1992, 1993, and 1994 tax returns. He was sentenced to 30 months in Federal prison, two years' probation, and $50,000 in fines that are separate from the liability. The petitioner served his prison sentence, and he completed his probationary period in 2006. On August 25, 2008, the IRS began collections against the petitioner's account for the 1991 tax year, a civil tax fraud penalty of $23,104, and interest of $53,385. The IRS mailed a notice of a balance due and demand for payment of the 1991 tax liability to petitioner on August 25, 2008. Remember Larry has cancer, and will probably never be able to pay this debt. He is a convicted felon, and doesn’t have any money to pay this liability. On November 17, 2008, the IRS received an Offer in Compromise. An Offer in Compromise is a program whereby a taxpayer offers an amount to the IRS that is less than the debt that they owe. There are several reasons why these offers are submitted. In Larry’s case it was his age, health condition, and finances. The IRS is never going to collect the amount of the tax. The taxpayer asserted his right under IRC § 7122, which states that the IRS can accept these offers based on certain criteria. Larry sought to settle his civil penalty liability for the 1991 tax year with an offer-in-compromise. This assertion was made because, because of doubt as to collectability as well as effective tax administration.
Because of Larry’s history of criminal tax fraud, the IRS’s determination was to reject convicted tax evader/elderly cancer patient's doubt-as-to-collectability and special circumstances offer and proceed with lien filing for his civil fraud liabilities was sent to IRS Appeals Office. In order to receive judicial review, Larry had to file this appeal. The appeal was done on the basis that the Revenue Officer that reviewed the case failed to show if settlement officer properly considered taxpayer's health issues when rejecting the offer.
In 2001, Larry was convicted of criminal tax evasion under IRC § 7201 with respect to his 1991 tax year and willfully making false or fraudulent statements under IRC § 7206(1) with respect to his 1992, 1993, and 1994 tax returns. He was sentenced to 30 months in Federal prison, two years' probation, and $50,000 in fines that are separate from the liability. Larry served his prison sentence, and he completed his probationary period in 2006. On August 25, 2008, the IRS levied against the petitioner's account for the 1991 tax year a civil tax fraud penalty of $23,104 and interest of $53,385. The IRS mailed a notice of a balance due and demand for payment of the 1991 tax liability to petitioner on August 25, 2008. On November 17, 2008, the IRS received Larry's Offer in Compromise. Using this program and IRC § 7122, petitioner sought to settle his civil penalty liability for the 1991 tax year with an offer-in-compromise. Petitioner sought the offer-in-compromise because of doubt as to collectability as well as effective tax administration.
Larry offered to pay $2,310. As part of the offer-in-compromise, petitioner submitted a Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals. On this form Larry reported that he received income of $5,449 per month from his pension and Social Security. Petitioner listed total household expenses of $5,464, which included a $941 and a $192 garnishment from his pension and Social Security, respectively, to satisfy his $50,000 court-ordered restitution payment. At the time he submitted the offer-in-compromise, he resided in a condominium on Via Ventana in Mesquite, Nevada. He indicated in his offer that his residence was a trust asset.
On February 9, 2009, an Offer Specialist with the IRS Weber began reviewing petitioner's offer-in-compromise. Offer Specialist Weber initially calculated petitioner's reasonable collection potential (RCP) at $19,218 during the investigation. However, Offer Specialist Weber noted that petitioner possibly owned an interest in the condominium and further information regarding the Via Ventana condominium was required. On May 22, 2009, Offer Specialist Weber sent petitioner and his counsel, a letter notifying them that a preliminary analysis of his offer-in-compromise had been completed. The letter indicated that petitioner's RCP was $250,810. The significant increase in Offer Specialist Weber's calculation of petitioner's RCP resulted from the inclusion of his community property share of the condominium's assumed value in determining his net equity in assets. Based on petitioner's RCP, Offer Specialist Weber stated in a May 22, 2009, letter to petitioner that petitioner had the ability to fully pay his liability.
Council for Larry sent the IRS a letter on June 4, 2009, disputing the factual information regarding how petitioner's RCP was calculated. In the letter, council disagreed with the calculation of petitioner's future income, the $10,778 bank account, and petitioner's ownership interest in the condominium that Offer Specialist Weber determined should be included in petitioner's RCP. On June 22, 2009, petitioner's offer-in-compromise was reassigned to Offer Specialist Carter to complete the investigation.
In a letter dated August 6, 2009, Offer Specialist Carter informed petitioner that his offer had been reassigned and that she agreed with the prior offer specialist's conclusion that petitioner's offer could not be accepted on the grounds of doubt as to collectability. Offer Specialist Carter determined that petitioner had the ability to fully pay his liability because his RCP was $256,124, which resulted from a determination of the value of petitioner's future income of $112,800 and the value of his net equity in assets of $143,324. In the same letter, Offer Specialist Carter stated that she was forwarding petitioner's offer with a recommendation for rejection and was requesting that a lien be filed with Clark County against petitioner's property. The Offer Specialist’s group manager sent petitioner a letter dated August 12, 2009, notifying petitioner that his offer-in-compromise had been rejected since it was determined that petitioner had the ability to fully pay his liability and explaining the appeal process to him. On August 18, 2009, the IRS sent petitioner a Notice of Federal Tax Lien Filing and Your Right to a Hearing under IRC § 6320. The lien was recorded at the County Recorder of Clark County in Las Vegas, Nevada, on August 24, 2009.
So this ends up in Tax Court. Which, by the way, you have a right to petition. The taxpayer’s offer ends up being rejected on the basis that when the interest in the property was subdivided, it was done incorrectly, and that Larry had the full; ability to pay the debt.
The crux of this story is be careful when filing offers with the IRS. The acceptance rate is only 18 – 20 percent.
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