A defunct business called Synergy Environmental, Inc., filed an Offer in Compromise with the IRS in August of 2010 offering $600.00 to compromise unpaid federal income tax liabilities. An Offer in Compromise (OIC) allows a taxpayer to “cut a deal” with the IRS where the taxpayer pays less than what is owed to the IRS.
The IRS subsequently rejected Synergy’s Offer in Compromise. The taxpayer then filed an Appeal with the IRS Office of Appeals requesting a hearing about a lien that was recently filed and proposed an Offer in Compromise as a collection alternative. At the Appeals hearing, the taxpayer did not specifically pursue an Offer in Compromise as a collection alternative and the IRS did not further explore this issue even though the taxpayer raised it in its Appeal.
The IRS subsequently upheld the filing of the Federal Tax Lien and stated that another division of the IRS would render any decision regarding an Offer in Compromise. The taxpayer filed a Petition in the United States Tax Court challenging the IRS’ determination. The United States Tax Court ordered the IRS to consider an Offer in Compromise as a collection alternative, finding that the IRS abused its discretion and that its determination was arbitrary, capricious or without sound basis in fact or law.
The Tax Court took the position that the IRS did not seriously explore an Offer in Compromise as a collection alternative.
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