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offers in compromise were submitted on Form 656, Offer in
Compromise. Petitioners’ offer was to make monthly payments to
satisfy the liabilities. Petitioners planned to pay a portion of
the offer amount from their expected tax refund for 1999.
On May 19, 2000, respondent’s revenue officer advised
petitioners that their offers in compromise could not be
processed until petitioners’ 1999 Federal income tax return was
filed. Under respondent’s procedures, offers are not processed
while taxpayers are not in compliance with the internal revenue
laws.
Petitioners had already filed for an extension of time to
file for 1999 because they were awaiting information from third
parties to complete the return. On June 15, 2000, respondent
filed two Notices of Federal Tax Lien (NFTL) at the county
recorder’s office in Orange County, California, with respect to
the individual and joint tax liabilities. Respondent sent
petitioners the filed NFTLs and Notices of Right to a Collection
Due Process Hearing. On July 14, 2000, petitioners submitted
Form 12153, Request for a Collection Due Process Hearing
(administrative hearing), contesting the NFTLs filed by
respondent and noting the pending offers in compromise.
Sometime in 2001, petitioners’ claims were assigned to
respondent’s Appeals officer. On June 20, 2001, the Appeals
officer and petitioners had a telephone conversation discussing
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