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B. Petitioner’s Offer in Compromise
In January 1997, petitioner and Mr. Moorhous submitted Form
656, Offer in Compromise, in which they offered $3,618 to
compromise his 1987-92 and 1997 tax liability and her 1989-92 tax
liability. At least $86,000 was due from petitioner and Mr.
Moorhous at that time for those years.
On or about March 3, 1997, respondent’s examiner, Ms. Vines
(Vines), asked petitioner and Mr. Moorhous to provide additional
financial information by March 28, 1997. Vines had received no
response from petitioner and Mr. Moorhous by April 8, 1997, and
she closed the case on that date. Respondent issued a written
rejection letter which stated that petitioner and Mr. Moorhous
have no administrative appeal rights. Petitioner and Mr.
Moorhous then submitted additional financial information, and
Vines agreed to reconsider their offer in compromise. Vines
again recommended that the offer in compromise be rejected based
on her estimate that the net realizable equity2 in petitioner and
Mr. Moorhous’s assets was at least $125,000 greater than the
amount they offered in compromise and considerably greater than
the $86,388 then due from petitioner and Mr. Moorhous. She told
2 Internal Revenue Manual sec. 5.8.5.3.1 (Feb. 4, 2000)
defines net realizable equity for purposes of an offer in
compromise as an estimate (usually about 80 percent of fair
market value) of the price a seller could get for the asset where
financial pressures motivate the seller to sell in a short period
of time (usually 90 days or less) less amounts owed to secured
lien holders with priority over the Federal tax lien.
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