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petitioner became aware of the estate’s income tax liabilities
were to pay debts that had priority over those due to the United
States.
In November 1993, petitioner submitted a Form 656, Offer in
Compromise, to respondent. The offer concerned both decedent’s
and the estate’s income tax liabilities and was accompanied by a
check drawn on the estate's checking account in the amount of
$17,586.07, which was the amount petitioner proposed to
compromise the liabilities for decedent’s 1989 income tax
liability and the estate’s income tax liabilities for 1989, 1990,
and 1991. The Form 656 contained the following statement: "This
offer in compromise of $17,586.07 represents the remaining value
of the estate. There are no future sources of funds available."
Respondent did not accept the Offer in Compromise. Several
months later, respondent returned the Offer in Compromise and the
uncashed check without any explanation.
After petitioner informed Mr. Lahr and Mr. Dilg of the
returned offer and the uncashed check, they had a series of
meetings and conversations with representatives of respondent,
including a meeting with supervisory personnel of respondent. As
a result of these conversations and meetings, Mr. Lahr and Mr.
Dilg believed they had negotiated a final resolution with
respondent. Mr. Dilg and Mr. Lahr informed petitioner that the
matter had been resolved with respondent, resulting in the case
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