Tax Court Finds IRS Abuse of Discretion

Posted on April 22, 2019

In this case, the retired taxpayers with severe health conditions owed the IRS over $60,000.00 for 2011, 2012, 2013 and 2014. The taxpayers entered into negotiations with a Revenue Officer and filed and Offer in Compromise. An Offer in Compromise is where you “cut a deal” with the IRS. They prepared and submitted the appropriate Offer forms, including a Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals along with underlying financial information. As part of the Offer, the taxpayers argued that their health problems and the foreclosure on their home constituted special circumstances which limited their ability to pay. The Revenue Officer rejected the Offer in Compromise and the taxpayers appealed that decision.

The taxpayers were also interested in pursuing an installment agreement but was told by the Revenue Officer that they could not propose an installment agreement while the Offer was in IRS Appeals. Accordingly, the taxpayers withdrew their Appeal so that they continue negotiating with the Revenue Officer. The taxpayers were also attempting to borrow money from their home and intended to pay the loan proceeds to the IRS. Unfortunately, the IRS filed a Notice of Tax Lien on the day the taxpayers submitted their loan application. The filing of a tax lien scuttled the taxpayers’ ability to borrow against their home. The taxpayers appealed the filing of the Federal Tax Lien. In scheduling the hearing, the Appeals Officer asked for the filing of a Form 433A, Financial Statement, on behalf of the taxpayers. In response, the taxpayers asked the Appeals Officer to take a second look at the Offer in Compromise and attached the Offer and the Form 433A (OIC) that was previously filed with the IRS. The taxpayers also stated that paying any amount at this time will result in economic hardship.

The Appeals Officer refused to review the Offer or the proposed installment agreement and stated that the taxpayers had not submitted the necessary financial information previously requested by the IRS. The Appeals Officer rejected the taxpayers’ partial payment installment agreement and did not appear to review the financial information provided by the taxpayers. The taxpayers then filed a Petition in the United States Tax Court alleging abuse of discretion. The Tax Court held in favor of the taxpayers, stating that the IRS abused its discretion by not reviewing the Offer in Compromise, the partial payment installment agreement and not considering their health condition or reviewing their financial information. The Tax Court remanded the case to IRS Appeals for further review. In this case, the IRS clearly trampled on the taxpayers’ rights. Here at IRS Trouble Solvers, we ensure that all taxpayers’ rights are protected. If you have an IRS problem, call us, we can help.