Can My Criminal Tax Conviction Cause the IRS to Reject My Offer in Compromise?

Posted on December 23, 2013

Do you remember the Isley brothers? Ronald Isley was convicted of tax evasion and willful failure to file tax returns in the 1990s and was sentenced to prison and probation.  The IRS subsequently attempted to collect Isley’s unpaid tax liability for several years, including the years for which he was convicted of tax crimes.  Isley filed an Offer in Compromise with the IRS and the IRS initially took steps to accept the Offer.  An Offer in Compromise is where you “cut a deal” with the IRS and pay less than what is due and owing. However, Isley’s Offer was ultimately rejected because of his prior criminal conviction.  The Internal Revenue Code essentially prohibits the IRS from accepting an Offer where the case was referred to the Department of Justice for prosecution or defense.  In that event, the Department of Justice must first approve the Offer in Compromise.  We feel that, based upon public policy grounds, the IRS should be prohibited from accepting an Offer where a taxpayer was criminally convicted for tax crimes.  If a taxpayer knew that he could cut a deal with the IRS in the future based upon his bad conduct, the deterrent effect on other taxpayers may be reduced.

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