Donald G. and Claudia A. Willis - Page 11

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          respondent’s use in this case of the prior policy for installment           
          agreements.                                                                 

          Offer in Compromise                                                         
               Section 7122 provides authority for an offer in compromise             
          as an alternative to collection action.  An offer in compromise             
          reduces a taxpayer’s overall liability.  An offer in compromise             
          may be granted for reasons such as doubt as to the actual tax               
          liability, doubt as to collectibility, or for other purposes                
          relating to effective tax administration.  Sec. 7122.                       
               As indicated, petitioners do not dispute the amount of the             
          cumulative liability.  The proposed offer in compromise was                 
          considered on the grounds of doubt as to collectibility.  In                
          general, an offer in compromise based on doubt as to                        
          collectibility may be accepted where there are substantial                  
          questions concerning whether the tax liability will be collected            
          in full and where the offered amount reflects realistic                     
          collection potential.  2 Administration, Internal Revenue Manual            
          (CCH), sec. 5.8.1.1.3, at 16,253 (2001).                                    
               After reviewing the initial financial information provided             
          by petitioners, the settlement officer suggested that                       
          petitioners’ proposed offer in compromise of $180 a month for 116           
          months, for a total of $20,880, appeared acceptable.  However, as           
          explained above, the settlement officer’s verification of                   
          petitioners’ financial information uncovered a significant                  





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